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Report from Montevideo

May 13, 2016

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When Moody’s recalibrated Uruguay’s national rating scale and repositioned the national scale ratings of seven Uruguayan banks and other financial institutions, it was careful in how it worded the text of the release. Moody’s subscribers may access the details; others may wish to refer to this article: https://www.moodys.com/research/Moodys-recalibrates-Uruguays-national-rating-scale-and-repositions-national-scale–PR_348355.

The May 9 information release caught some by surprise. And the implication is that there may be a downgrade of credit. We discussed this development among our delegation and around our meetings at the Uruguayan stock exchange and central bank.

The situation on both sides of the Rio de La Plata is in flux. In Argentina we see a fledgling government trying to reestablish open markets and an operating financial system. In Uruguay there is an adjustment underway as well.

Nature abhors a vacuum. So Argentines would cross the bay to escape the oppression of the former regime, bringing assets with them. Thus a small country like Uruguay had a large banking presence and the early stages of markets.

Uruguayans aspire, they say, to create a South American version of Switzerland. The goal is clear; getting there is harder. And the current changes in Argentina make the transition more complex. Added to the uncertainty is the turmoil stirred by rising political risk in Brazil.

Some here actually relate stories about threats to personal safety when they are in Brazil. We’ve heard that before but have never had such experiences when in transit through that country. But we sense that risk is higher now in Brazil than previously.

So the two larger geographies that bookend Uruguay both have their troubles and challenges. Little Uruguay is in the middle.

This is an instructive part of our trip. Pleasant, welcoming citizens abound. But there is an element of uncertainty that lurks in the background.

For travelers we highly recommend Uruguay and Argentina. They pair nicely in a trip. Argentina is currently a tourist bargain, as most countries are when they devalue their currency prior to your visit.

Some of the public presentations from this two-country trip will be available on the GIC website, www.interdependence.org.

We are back at our desks on Monday.