Institutional Investor Presentation República Oriental del Uruguay Ministry of Economy and Finance October 2018 1 Congress, National Assembly Strong Institutions and Social Cohesion 2 Uruguay remains a bastion of institutional stability in a volatile region Ranking position in LATAM Political Stability Lowest Corruption (Worldwide Governance Perception Indicators, 2017) st st (Transparency International, 1 1 2017) Rule of Law Full Democracy (*) (World Justice Project, st st 1 (The Economist Intelligence 2017-2018) 1 Unit, 2017) Press Freedom Prosperity st nd 1 2 (Reporters Without Frontier, (Legatum Institute, 2017) 2018) 2nd 2nd Global Peace Economic Freedom (Institute for Economics & (Heritage Foundation, 2018) Peace, 2018) (*) 18th place worldwide as a Full Democracy 3 Macroeconomic Stability 4 Uruguay has experienced over a decade and a half of uninterrupted economic growth Real GDP Growth (Annual change, in %) 8 6 Avg. 2005-2017: 4.3% 4 2.5 2 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018* (*) Projected Source: Central Bank of Uruguay 5 Growth with equality: the best distributed income and highest GDP per capita in the region GDP per capita and Gini Index 20,000 GDP per capita: 17,379 Uruguay 16,000 Panama Gini Index: 0.391 Chile Costa Rica 12,000 capita Argentina per per Mexico Brazil 8,000 Peru income Colombia Ecuador Paraguay Growing 4,000 Bolivia 0 0.55 0.50 0.45 0.40 0.35 Increasing income distribution Source: International Monetary Fund, World Economic Outlook Database, October 2018 for GDP per capita in nominal USD; Social Outlook of Latin America 2017 for Gini Index data 6 Investment has been falling and employment lags the cyclical recovery Gross Fixed Capital Investment Labour market indicators (Last 12 months, in % of real GDP) (Average of last 12 months, in %) 25 9.0 62.0 Employment Rate Unemployment Rate 20 8.0 60.0 15 7.0 58.0 10 6.0 56.0 5 0 5.0 54.0 2011 2012 2013 2014 2015 2016 2017 2018Q2 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Source: Central Bank of Uruguay Source: National Bureau of Statistics 7 The government has launched a set of policies to boost investment and employment… Promote investment and employment Support small businesses Facilitate tax compliance • Changes to the Investment Promotion • Simplified Net Worth Tax for SMEs Regime to boost investments with positive externalities • Simplified procedures for corporate restructuring • Additional tax benefits for promoted investment projects executed in 2018 • Improvements for tax-payers: Reduced tax debt payments costs • Benefits for domestic farm equipment production More payment channels Reinforcement of Tax Administration • Extension of automatic tax credits for rights SME investments 8 …and private investment is reacting to the stimulus Number of projects presented Total investment presented (Total for Jan-Aug each year) (Total for Jan-Aug each year, in USD million) 500 1,600 +82% 398 1,279 400 1,200 +257% 300 800 219 200 400 538 100 0 0 2015 2016 2017 2018 2015 2016 2017 2018* (*) Includes USD 412 million corresponding to three projects submitted by UPM. 9 No restrictions on foreign investor activity in Uruguay 10 Carrasco Montevideo Airport Reduced linkages with the Region 11 Decoupling in the midst of a regional downturn Cumulative Real GDP Growth 2018Q2 Real GDP Growth (Index base 100=2011) (YoY change, in %) 3 120 +19.6% 2.5 2 116 1.0 1 Uruguay 112 0 -1 108 Brazil -2 104 +0.6% -3 100 -4 Argentina -1.7% -4.2 96 -5 2011 2013 2015 2017 2018Q2 Uruguay Brazil Argentina Sources: Central Bank of Uruguay (BCU); Central Bank of Brazil (BCB); National Institute of Statistics and Censuses (INDEC, Argentina). 12 Reduced reliance on the region for export revenues and sources of FDI inflows Exports of Goods by Destination Foreign Direct Investment Inflows by Country of Origin1/ (Last 12 months to August 2018, as a share of total) (As a share of total, 2017)2/ Brazil Argentina Argentina 1% 5% 2% Brazil United 16% States 23% United States Others Others 6% 54% 50% China 19% Spain 24% 1/ Includes equity contributions and profits reinvestments and excludes loans with related companies. 2/ Only considers countries with positive inflows. Source: Central Bank of Uruguay Source: Uruguay XXI with data from the Central Bank of Uruguay 13 Argentina remains the main source of inbound tourism, yet the weight of other services has increased recently Tourist Arrivals and Receipts Exports of Services (Last 12 months) (Last 12 months, in USD millions) Foreign Visitors Tourism Receipts 1/ (in million) (in USD billion) Tourism Other 6,000 5 2.5 Others Argentine Tourism exports 5,000 4 4,000 2 3 3,000 2 1.5 2,000 1 1,000 0 1 0 2010 2012 2014 2016 2018Q2 2010 2012 2014 2016 2018Q2 1/ Software, transport and logistics Source: Ministry of Tourism Source: Central Bank of Uruguay 14 In addition, financial linkages with non-residents through the banking sector have diminished Credit to Non-residents by Local Banking System Deposits by Non-residents in Local Banking System (% of total credit, end-period) (% of total deposits, end-period) 20 50 16 40 12 30 8 20 4 10 0 0 2001 2018* 2001 2018* (*) As of August Source: Central Bank of Uruguay 15 Sovereign credit spreads are indicative of the ongoing differentiation Sovereign Risk (G-Spread in 10-Y dollar bonds, in bps) 800 700 Argentina 600 500 400 300 Brazil 200 Mexico Colombia Uruguay 100 Peru 0 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Source: Bloomberg 16 Cerro de los Caracoles, Uruguay Fiscal Policy Outlook 17 Central Government deficit is gradually contained… Central Government deficit (Last 12 months, in % of GDP) 4.0 Total Deficit Primary Deficit 3.5 3.0 3.0 2.5 2.0 1.5 1.0 0.5 0.3 0.0 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 -0.5 Source: Ministry of Economy and Finance 18 … and policy priority is to shore-up overall public finances Consolidated Public Sector deficit (In % of GDP) Non-financial Public Sector1/ Central Bank 4 Consolidated Public Sector Projections 1.0 3 2.8 2.5 2 2.9 1 0 2010 2011 2012 2013 2014 2015 2016 2017 Aug-18* 2019 2020 (*) Last 12 months 1/ Includes Public Enterprises Source: Ministry of Economy and Finance 19 Tax collection and social security contributions have moderated recently in real terms… Tax revenues Social security contributions (Real annual change, in %) (Real annual change, in %) 7 8 7 6 6 5 5 4 4 3 3 2 2 1.5 1 1 0 -0.2 -1 0 2013 2014 2015 2016 2017 Jan- Sep -2 18 2013 2014 2015 2016 2017 Jan-Aug 18 Source: Ministry of Economy and Finance 20 … while real expenditures are decelerating Central Government – current primary expenditure (Real annual growth, in %) 7 6 5 4 3 2.0 2 1 0 2013 2014 2015 2016 2017 Jan-Aug 2018 Source: Ministry of Economy and Finance 21 Growth in number of retirees and associated pension expenditure has stabilized… Total number of pensioners Pension expenditures (Annual change, in %) (Last 12 months, in % of GDP) 4 10.5 3 10.1 10.0 2 9.5 1 0.2 0 9.0 -1 8.5 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Jan-Jul 18 Source: Ministry of Economy and Finance 22 … and nominal wage deceleration will further reduce pressures on indexed pension expenditures next year Nominal Wages (Annual change, in %) 14 12 10 8 7.8 6 2011 2012 2013 2014 2015 2016 2017 Jan-Sep 18 Source: National Bureau of Statistics 23 Recent Budget Review Law was prudent Change in Fiscal Deficit on election years (In % of GDP from previous year – Consolidated Public Sector) 3.0 2.5 2.0 1.5 1.0 0.5 Projected 0.0 -0.5 -0.5 -1.0 -1.5 1984 1989 1994 1999 2004 2009 2014 2019 Source: Ministry of Economy and Finance 24 Port of Montevideo Robust External Sector 25 Improvement of external accounts Current Account Balance Trade Balance in Goods & Services (Last 12 months, in % of GDP) (Last 12 months, in USD million) 1 4,000 0.2 0 3,000 -1 2,000 -2 1,000 -3 -4 0 2013 2014 2015 2016 2017 2018Q2 2013 2014 2015 2016 2017 2018Q2 Source: Central Bank of Uruguay 26 Solid external buffers Current Account Balance compared to LATAM International Reserves compared to LATAM (Last 12 months to 2018Q2, in % of GDP) (As of June 2018, in % of GDP) 2 35 1 30 0 -1 25 -2 20 -3 15 -4 -5 10 -6 5 -7 -8 0 Uruguay Brazil Chile Peru Mex. Colombia Arg. Panama Uruguay Peru Brazil Colombia Mex. Chile Arg. Panama Source: Central Bank of Uruguay; Central Bank of Mexico and National Bureau of Statistics and Geography of Mexico; National Bureau of Statistics and Censuses (INDEC) of Argentina; Central Bank of Brazil; Central Bank of Colombia; Central Reserve Bank of Peru; Central Bank of Chile; National Bureau of Statistics and Censuses of Panama. 27 Nominal Exchange depreciation in line with other Emerging Markets Nominal Exchange Rate Emerging Market Currencies vs USD (pesos per USD; daily) (2018 YTD change as of 10/30, in %) 34 Argentine Peso 33 Turkish Lira Indian Rupee 32 Uruguayan Peso 14.3 31 Russian Ruble Chilean Peso 30 Brazilian Real Depreciation against USD 29 Indonesian Rupiah 28 Colombian Peso Peruvian Sol 27 Singapore Dollar 26 Mexican Peso Malaysian Ringgit 25 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 0 20 40 60 80 100 120 Source: Central Bank of Uruguay Source: Bloomberg 28 Central Banks has intervened on both sides of the FX market to smooth out undue volatility Central Bank FX Intervention Stock of Central Bank Bills (In USD million) (In USD million) FX Sales through CB Bills Repurchase #REF! 10,000 FX Purchases Average Monthly Nominal Exchange Rate 8,148 8,000 600 34 400 33 6,000 200 32 0 31 4,000 -200 30 -400 29 2,000 -600 28 -800 27 0 Jan-17 Aug-17 Mar-18 Oct-18 Sep-12 Mar-14 Sep-15 Mar-17 Sep-18 Source: Central Bank of Uruguay 29 During the regional sell-off, the Central Bank (CB) sold dollars in exchange for local- currency CB bills, mostly tendered by Pension Funds (PF).