LONDON, Feb 16 (Reuters) - Uruguay will push ahead with shifting its government debt away from the dollar and seek the broadest trade ties possible as the Latin American nation looks to boost growth, the country's finance minister told Reuters.
Gabriel Oddone said Uruguay's aim is backed by solid investor demand, with some viewing the country's currency as "more stable than the dollar" as the greenback weakens and geopolitical risk roils once-stable Western world investments.
"We are moving (forward)
in the de-dollarization process," Oddone told Reuters, referring to the government's ambition to issue about half the country's debt in domestic currency in the near future.
In the early 2000s, some 90% of debt owed by the relatively wealthy South American farming nation was in U.S. dollars, Oddone said, due to limited demand for debt in Uruguayan pesos and also due to lower costs for greenback-denominated debt.
Now, Oddone said, moving to peso debt protected the government from currency swings outside its control.
"Issuing pesos is more expensive than using dollars, but ... it's part of the strategy to diversify our risks, and especially be prepared (for) shocks coming from abroad," Oddone said, noting that repaying in pesos, the currency in which it collects taxes, is more predictable.
Uruguay's efforts are boosted by investors who are chasing local currency debt in emerging and frontier markets as a lucrative investment - and one that helps them diversify away from the dollar. Last year, Uruguay - which has an investment-grade sovereign rating - issued 40% of its international debt in pesos - the highest-ever level.
The country expects to raise the equivalent of $6 billion in financing this year, Oddone said, the vast majority via debt sales. In 2027, it also plans to issue another green bond, despite some investor and issuer pullback from the instruments due to backlash in the U.S. and elsewhere over environmental goals.
"For the investors in Europe, this is continuing to be an important thing," he said.
TIP OF THE SPEAR
Uruguay's growth, pegged at 2.5% last year by the IMF, has slowed, while inflation has also slowed. Analysts have urged the center-left government, which came in around a year ago, to undertake reforms that help tackle the regular deficits.
Oddone said the country's central government deficit had risen to just above 4% by end-2025, but was expected to slip just below the 4% threshold in 2026 and fall more substantially in 2027, in part due to an OECD-aligned tax deal that would boost revenues.
JPMorgan in a research note this week forecast that the central government deficit would reach 4.6% this year.
Oddone said the government is working to boost growth through tax modifications, tax incentives, and to "redesign" certain sectors that are crucial to attract investments.
But he added that Uruguay, which is heavily reliant on agricultural exports like beef and soybeans, aims to be the "tip of the spear" for the regional Mercosur trade bloc, but it is also seeking broader engagement, including OECD membership.
Mercosur signed its largest-ever trade deal with the European Union last month, and is also in talks with China and Canada about a trade pact.
"We need to be members of Mercosur, but we need to be more connected, to be more connected to the economic world," he said.
(Reporting by Libby George, Editing by William Maclean)
