Uruguay is making strides toward its US$4.3 billion financing goal this year by issuing local currency debt on the domestic capital market.
The move is a strategic response to slowing inflation, enabling Uruguay to decrease its dependence on dollar-based loans, according to Azucena Arbeleche, the Minister of Economy and Finance.
As of this year, Uruguay has secured over US$2.6 billion from domestic and international investors through bonds denominated in its local currency.
The funds include a 10-year fixed-rate global bond in pesos, a significant shift from previously inflation-tied instruments.
Arbeleche did not rule out the potential for another global bond issuance in 2023.
The selection of the bond’s currency will rely on interest rates and the scale of the issuance.
The use of local currency financing aligns with a significant drop in consumer prices, a key goal of President Luis Lacalle Pou’s austerity measures and restrictive monetary policy.
With a 6% gain this year, the Uruguayan peso stands among the best performing Latin American currencies, contrasting sharply with Argentina’s 35% currency drop.
Furthermore, Uruguay’s dollar-based bonds have yielded 2% this year, compared to the 7.6% yield of their regional counterparts.
In an effort to bolster environmental policies, Uruguay previously issued the world’s first sustainability-linked sovereign bond (SLB), whose interest rate adjusts based on the country’s fulfillment of specified environmental targets.
While no additional SLBs are planned for the immediate future, the nation is working with the World Bank and the Inter-American Development Bank on similar initiatives that would reward environmental compliance with lower interest rates.
Arbeleche emphasized the strategic importance of aligning economic policies with environmental considerations.