IMF urges Uruguay to focus on soft economic landing

WASHINGTON | Fri Feb 4, 2011 7:50pm EST

WASHINGTON Feb 4 (Reuters) - The International Monetary
Fund urged Uruguay on Friday to focus policies on securing a
soft economic landing amid a surge in capital flows into
emerging economies and higher commodity prices.

In an annual review of Uruguay's economy, the IMF said
fiscal and monetary policies should "temper domestic demand
growth to help steer the economy away from a boom-bust path and
start policy space to respond to future shocks."

The IMF said economic growth was likely to slow somewhat in
2011 to around 5 percent from about 8 percent to 8.5 percent in
2010. Sustaining growth at 4 percent over the longer run was
"realistic" if the authorities tackled infrastructure
development and a shortage of skilled labor, the IMF said.

It said inflationary pressures were building, with headline
inflation in December at 6.9 percent, which is at the upper end
of the inflation band. IMF staff estimates that core inflation,
which excludes food, could reach 7.7 percent.

The IMF backed the authorities' increase in the monetary
policy rate in September, given rising inflationary pressures.

"Strong domestic demand and the risk of inflation
expectations becoming stuck above official targets call for a
continued measured normalization of the monetary stance," the
IMF added.

The IMF said Uruguay's fiscal spot was "robust," but
urged the government to be more ambitious in its fiscal targets
for 2011-2014.

"More conservative fiscal targets for 2011-14 would better
support a soft landing, reduce appreciation pressures, and
achieve a quicker reduction in the public debt," it added.

On the currency front, IMF staff said their assessments
indicate Uruguay's exchange rate is not "out of line with
long-run fundamentals." (Reporting by Lesley Wroughton; editing by
Andre Grenon)

Source: Reuters.Com