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Uruguay Institutional Presentation

Ministry of Economy and Finance April 2019 Organization of the Presentation

1 Key Highlights of the Uruguayan Economy

2 Recent Developments and Policy Priorities

3 Medium Term Prospects

2 Key Highlights of the Uruguayan Economy

Sustained (although moderating) growth in a volatile regional environment

Solid medium-term Strong institutional prospects on large-scale foundations and political investment and and social stability infrastructure projects

Steering inflation back Large international to target, in the context reserves and resilient of still-high financial government debt profile dollarization

Fiscal consolidation facing headwinds amid rigid spending and decelerating economy

3 Macroeconomic and social stability based on sustained economic growth…

Real GDP growth GDP per capita and income distribution (Gini index) (In %) (Year 2018)

20,000

8 8

Panama 7 7 16,000

6 6 Costa Rica Avg. 2003 - 2014: 5.1% capita 12,000

5 5 per per Mexico

4 4 income 8,000 3 3

Avg. 2015 - 2018: Growing 2 1.9% 2 1.6 4,000

1 1

0 0 0 2003 2006 2009 2012 2015 2018 0.53 0.48 0.43 0.38 Improving income distribution

Source: Central of Uruguay, International Monetary Fund, World Economic Outlook Database, October 2018, Social Outlook of Latin America 2018 4 … showing resilience in the face of adverse regional environment.

Cumulative real GDP growth (2011 – 2018) GDP growth in 2018Q4 (Index, Base 100=2011) (YoY, in %)

120 2

1.1 +19.1% 1 0.6 115 0

-1 110 -2

-3 105

-4 +0.5% 100 -5

-0.5% -6 -6.2 95 2011 2012 2013 2014 2015 2016 2017 2018 -7 Uruguay Brazil

Sources: of Uruguay; National Institute of Statistics and Censuses (INDEC - Argentina); Central Bank of Brazil 5 Export market diversification and limited financial linkages with Argentina has mitigated regional exposure.

Exports of goods by destination Deposits by non-residents in local banking system 1/ (as a share of total exports in each year) (Private non-financial sector, % of total)

2018 50 Brazil 13%

40 Argentina Others 5% 56% 30 (168 countries)

20 41.5

China 26% 10

9.8

0 2001 2018

1/ Assumes all non-residents deposits are in foreign

Source: Export and Investment Promotion Agency (Uruguay XXI), 6 Uruguay remains a bastion of institutional, political and social stability in Latin America

Uruguay Ranking Position in LatAm & Caribbean

1 Political Stability 1/ 1 Prosperity 5/

6/ 1 Rule of Law 2/ 2 Press Freedom

1 Lowest Corruption 2 Economic Freedom 7/ Perception 3/

8/ 1 Full Democracy 4/ 2 Global Peace

Sources: 1/ Worldwide Governance Indicators, 2/ World Justice Project, 3/ Transparency International, 4/ The Economist Intelligence Unit, 5/ Legatum Institute, 6/ Reporters Without Frontier, 7/ Heritage Foundation, 8/ Institute for Economics and Peace 7 However, the economy is losing steam and employment has lagged in recent years…

Quarterly real GDP growth Labour market indicators (YoY change, in %) (Average of last 12 months, in %)

Employment rate (left axis) Unemployment rate

feb-13 may… ago-13 nov-13 feb-14 may… ago-14 nov-14 feb-15 may… ago-15 nov-15 feb-16 may… ago-16 nov-16 feb-17 may… ago-17 nov-17 feb-18 may… ago-18 nov-18 feb-19 4 62 9

60 3 8

58

2 7

56

1 6 54

0 52 5 2016Q1 2016Q3 2017Q1 2017Q3 2018Q1 2018Q3 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19

Source: Central Bank of Uruguay, National Institute of Statistics (INE) 8 … thus, boosting investment has been a key policy response.

Number of projects presented to the Gross Fixed Investment Investment Law Applicability Committee (In % of GDP) (Total for January – February each year)

25 80

+35% 65 20 60 16.5 48 15

40

10

20 5

0 0 2010 2012 2014 2016 2018 2016 2017 2018 2019

Source: Central Bank of Uruguay, Ministry of Economy and Finance 9 Economic pressures in Argentina spilled through the tourism channel; a severe drought reduced soybean production

Tourist arrivals Soybean production (In thousands, January - February of each year) (In millions of tonnes, by harvest period)

Argentineans Others 1,400 4

1,200 -31% -63%

3 1,000

800 2 600

400 1

200

0 0 2018 2019 2016/17 2017/18

Source: Ministry of Tourism of Uruguay, National Institute of Agricultural Research 10 External current account balance is broadly consistent with fundamentals

Current account balance Current account balance compared to LatAm (In % of GDP) (2018, in % of GDP)

1 0

-0.6 -1 -2 -0.6

-2

-4

-3

-6 -4

-8 -5 URU BRA PER MEX CHI COL ARG PAN 2012 2013 2014 2015 2016 2017 2018

Source: Central Bank of Uruguay; Central Bank of Mexico; National Institute of Statistics and Censuses (INDEC - Argentina); Central Bank of Brazil; Banco de la República de Colombia; Central Reserve Bank of Peru; Central Bank of Chile; Contraloría General de la República de Panamá. 11 Mild deteroration in the CA due to strong increase in repatriated and reinvested profits of foreign-owned firms

Current account components (12-month rolling period, in % of GDP)

5.9

5

Goods and Services

2

Transfers and other earnings -1 Current account

-4 Reinvested and repatriated FDI profits

-7 -5.8 2012Q4 2013Q4 2014Q4 2015Q4 2016Q4 2017Q4 2018Q4

Source: Central Bank of Uruguay 12 Terms of trade stabilized CA dynamics, and exports of other services picked up some slack from lower inbound tourism

Terms of trade for goods Exports of services (Average 2012 = 100) (In USD million)

130 6,000 1/ Tourism Other

5,000 120 Colombia Uruguay

4,000 110

3,000 Paraguay

100 Chile Mexico 2,000

Argentina 90 1,000 Peru

Brazil 0 80 2012 2014 2016 2018 2012 2013 2014 2015 2016 2017 2018 2019 1/ Software, transport, logistics, maintenance, financial, personal and professional and consultancy services

Source: Central Bank of Uruguay, International Monetary Fund 13 Steering inflation back to target is a key policy priority

Inflation (Annual, in %)

12 Headline inflation

Core inflation

10 • `s moderate contractive stance is geared towards 8.0 8 7.8 bringing inflation down, taking into account the

6 stage of the business cycle.

Inflation Target Band 4

2 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19

Source: National Institute of Statistic and Central Bank of Uruguay 14 Flexible and forward-looking wage-setting guidelines aimed at reducing indexation and non-tradable inflation inertia

Tradeable and non-tradeable inflation Government`s guidelines for 2018 wage negotiations (Annual, in %) (Annual increase in nominal wages by sector classification, in %)

12 Tradeables

Non-Tradeables 10 2018 2019 10 2020 8 8.3 8 7.6 6

6 4

4 2

2 0 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Laggard Intermediate Dynamic

Source: Ministry of Economy and Finance and Ministry of Labour and Social Security 15 Nominal exchange depreciation in line with other emerging markets

Emerging market vs USD Central bank FX intervention (YoY change in nominal exchange rate, in % as of 4/23/2019) (In USD million)

Market Interventions

Nominal Exchange Rate (right axis)

Argentine 600 34 Turkish Lira Dollar Purchases 33 22.2 400 32

Colombian Peso 31 200 30 Malaysian Ringgit Depreciation against USD

Indian Rupee 29 0 Russian Ruble 28 27 Singapore Dollar -200

Indonesian Rupiah 26 Dollar Sales -400 25 -10 10 30 50 70 90 110 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19

Source: Bloomberg Source: Central Bank of Uruguay 16 Ample international reserves provides sizeable external buffers

International reserves Reserve adequacy compared to LatAm (End-of-period) (International reserves to IMF’s Reserve Adequacy metric, as of November 2018)

In USD billion in % of GDP (right axis) 20 35 250

16.4 30 200 15 27.9 182

25 150

10 Adequacy Range

20 100

5 15 50

0 10 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Mar- PER PAR URU BOL BRA COL CHL ARG MEX PAN 2019

Note: The Reserve Adequacy (ARA) Metric is calculated by the IMF for Emerging Markets (EM) and comprises four components reflecting potential balance of payment drains: (i) export income, (ii) broad money, (iii) short-term debt, and (iv) other liabilities. The weight for each component is based on the 10th percentile of observed outflows from EM during exchange market pressure episodes, distinguishing between fixed and flexible exchange rate regimes. 17 Sources: Ministry of Economy and Finance, Central Bank of Uruguay, IMF The banking system shows high profitability and capitalization, yet deposit dollarization is still elevated

Solvency and profitability of the banking system Dollarization of ´ deposits and credit (Private non-financial resident sector, % of total)

Nº of times the minimum Return on Deposits Credits regulatory capital equity, in % 90 1.9 25

20 80

1.8

15 70.8 70

10 1.7

60 5

51.5

1.6 0 50 Jun-17 Dec-17 Jun-18 Dec-18 2002 2004 2006 2008 2010 2012 2014 2016 2018

Source: Central Bank of Uruguay 18 Fiscal consolidation is critical to achieve budget objectives

Headline Fiscal balance of the overall public sector (In % of GDP)

Non-Financial Sector Central Bank Overall Balance 0 • Headline fiscal balance is consolidated for the whole public sector, including the Central Bank and public enterprises. -1 -2.2 • The Central Bank cannot transfer to the

-2 Treasury unrealized gains originated from the accounting revaluation of international -0.8 reserves and other central bank assets. -3 -3.0

-4 2015 2016 2017 2018 Feb-2019*

(*) Last 12 months

Source: Ministry of Economy and Finance 19 Fiscal consolidation is critical to achieve budget objectives

Fiscal balance of the public sector (In % of GDP)

Central Bank

Non-Financial Sector • Government revenues includes the inflow Overall Balance without Social Security Trust transfers of funds into the public Social Security 0 Trust, in the context of a law introducing changes to the pension system. -1

-3.7 -2 • These accumulated inflows reduced the headline fiscsl deficit by 1.5% of GDP in the -3 12 months to February 2019.

-4 -0.8

-4.5 -5 2015 2016 2017 2018 Feb-2019*

(*) Last 12 months

Source: Ministry of Economy and Finance 20 Fiscal consolidation is facing headwinds…

Revenues from VAT from the private sector Composition of Central Government expenditures (Real change in %, 12-month rolling period) (12-month period as of February 2019, in % of total)

6 Salaries 16% 5

4 Transfers 28%

3 Discretionary 16% 2

1

Pensions Interests 31% 9% 0

-1

-2 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19

Note: Transfers includes Central Government and Social Security Bank (BPS) transfers. Source: Ministry of Economy and Finance 21 … which is the flip side of a broad social safey net ensuring social cohesion and low poverty rates.

Pension expenditures Social security coverage ratio compared to Latam (In % of GDP, 12-month rolling period) (Contributors over labor force, in %)

10.5 100

79 80

10.0

60

9.5 40

20 9.0

0

8.5 Feb-15 Oct-15 Jun-16 Feb-17 Oct-17 Jun-18 Feb-19

Source: Ministry of Economy and Finance, IMF (2018) 22 Improvement in financial health of public enterprises

State-owned enterprises´ balance sheet results 1/ (In USD million) Central Bank sells USD forward

800 CENTRAL 700 CENTRAL STATE-OWNED BANK ENTERPRISES BANK 600 Enterprises sell forward 500

400 • Central Bank signed forward peso/dollar contracts with each company at market prices, and with 300 appropriate counterparty-risk clauses.

200 • This transaction re-distributed foreign exchange

100 risk among those institutions with the best capacity to absorb it. 0 2011 2012 2013 2014 2015 2016 2017 2018

1/ Includes UTE, ANCAP, ANTEL y OSE

Source: Ministry of Economy and Finance 23 Active debt management has improved the debt profile, reducing currency and maturity risks...

Central Government (CG) Debt Currency and maturity composition of CG debt (In % of GDP, end-period) (End-year)

In foreign currency (% of total) 80 100 16 Average time to maturity (in years, right axis) Gross Debt

Net Debt 80 13.8 14 60

49.3 60 12 54.5

40 44.1

40 10

20 20 8

0 0 6 2005 2007 2009 2011 2013 2015 2017 2018 2005 2007 2009 2011 2013 2015 2017 2018 2019Q1

Source: Debt Management Unit, Ministry of Economy and Finance 24 …while keeping borrowing costs subdued

Central Government (CG) cost of financing EMBI Spread (Average on outstanding debt, in %)1/ (In bps)

Dollars (left axis) Local currency, CPI-indexed 8 5.6 300 Investment Grade countries

Uruguay 280

5.2 260

240 7

4.8 220

200

4.4 180

6 160

4.0 140 3.8 120 5.2 5 3.6 100 2005 2007 2009 2011 2013 2015 2017 2018 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19

1/ Weighted average

Sources: Debt Management Unit, Bloomberg 25 Pre-financing policy of Government provides funding flexibility in the event of external shocks

Government`s financial buffers and debt service obligations 1/ (In USD million, as of March 2019)

5,000

4,000 Credit Lines with Multilaterals 3,000 Foreign Currency Debt Service Next 12 Months 1/

2,000

Foreign Currency Liquid 1,000 Assets

Local Currency Local Currency 0 Column1 Column2

1/ Debt Service includes amortization plus interest payments

Source: Debt Management Unit, Ministry of Economy and Finance 26 Central Government`s financing needs and funding strategies

In 2018:

Financing needs last year totaled USD 4.13 billion. Almost 80% was raised in debt markets in both local and foreign currency (in almost equal proportions), by tapping the short, intermediate and longer-end of the sovereign yield curve.

In 2019:

Estimated total funding needs are around USD3.2 billion (excluding transfers to public sector pension scheme). Total bond issuance is estimated at USD 2.95 billion (52% has already been completed).

The goal is to balance the currency composition of debt in terms of local and foreign currency, while keeping conservative pre- financing policy.

27 Uruguay’s credit rating performance

Evolution of Uruguay’s sovereign credit ratings Latest credit rating actions

A3/A-/A- January 2019. Confirms Uruguay’s rating at BBB Moody's S&P Fitch (low), Stable trend. Baa1/BBB+/BBB+

Baa2/BBB/BBB January 2019. Uruguay´s rating affirmed at BBB with Stable outlook. Investment Grade Baa3/BBB-/BBB-

October 2018. Affirmed Uruguay's rating at BBB-, Ba1/BB+/BB+ revised outlook to Negative.

Ba2/BB/BB

May 2018. Affirms Uruguay’s rating at BBB with Stable outlook. Ba3/BB−/BB−

B1/B+/B+ July 2017. Outlook raised to Stable from Negative and affirmed “BBB” rating. B2/B/B

2006 2008 2010 2012 2014 2016 2018 2019

Sources: Moody’s, S&P,R&I, DBRS and Fitch 28 Organization of the Presentation

1 Key Highlights of the Uruguayan Economy

2 Recent Developments and Policy Priorities

3 Medium Term Prospects

29 Prospect of largest-ever private investment…

• Potential construction of a new pulp-mill with and on-site investment of EUR 2 billion

• Could have a material positive impact on GDP growth

 Background: UPM 1 had a permanent impact on GDP of around 1.4%, while Montes del Plata 2%

Key features:

• Plantation base:

• Railway with high technical standards

• Deep sea Port in loading full vessels

• Construction of a specialized port terminal

Sources: http://assets.upm.com/Investors/2018/03%2018%20Roadshow%20Presentation.pdf https://medios.presidencia.gub.uy/tav_portal/2017/noticias/NO_Y823/contract.pdf https://www.upm.uy/en/growth/news/2019/01/upm-is-tendering-for-a-pulp-terminal-in-montevideo-deep-sea-port-in-uruguay/ 30 http://www.storaenso.com/media-centre/press-releases/2011/01/Pages/stora-enso-and-arauco-joint.aspx … together with a new railway system…

Central Railway project poised to start in 2019

• Will run between the port of Montevideo and the city of Paso de los Toros, located in the centre of the country (273 km of railways)

• Estimated investment of USD 825 million

Source: PPP Unit, Ministry of Economy and Finance, Ministry of Transport and Public Works 31 … plus a maturing pipeline of PPP infrastructure projects are foundations for medium-term economic growth

Executed PPP investment and pipeline of projects (In USD million)

Roads and Highways Education Central Railway 800 • As of end of March, 72% of the USD 12.4

700 bn 2015-2019 total infrastructure plan (financed by budget + PPP) is completed. 600

500

400 • 11 PPP projects in the pipeline are poised

300 to start execution this year.

200

100

0 2018 2019 2020 2021 2022

Source: PPP Unit, Ministry of Economy and Finance, Ministry of Transport and Public Works 32