MONTEVIDEO, Sept 18 (Reuters) – Diego Labat, Uruguay’s central bank chief, is sitting pretty. Inflation is at the lowest level in nearly two decades, the currency is one of the region’s strongest, and the country is leading a regional pivot towards interest rate easing.
That’s a sharp contrast to just across the Rio de La Plata estuary in Buenos Aires, where inflation hit 124% in August, the highest since 1991, capital controls are barely holding back a fall in the currency, and net reserve levels are in the red.
It’s also a sign of a tectonic shift over years: strong, independent institutions and political stability helping Uruguay’s economy increasingly detach from its larger neighbor, where the two once rose and fell in tandem.
“Uruguay has done its homework,” Labat, 53, told Reuters at his office near the bustling port of Montevideo, adding that the country had been much more susceptible to economic shocks from Argentina just a few decades ago.
In 2002 the small farm-driven economy suffered bank closures, high unemployment and soaring poverty during a devastating financial crisis in Argentina, due to a direct “link” between the two financial systems that has weakened since.
“A problem in Argentina back then was a problem in Uruguay,” Labat said. Argentina was then Uruguay’s second biggest trading partner. Today it has fallen to number four, after China, Brazil and the European Union.
“Today a problem in Argentina is no longer a problem here.”