When Covid-19 hit emerging markets in March, Uruguay was not spared, and bond yields shot 150bp wider. Yet in several ways, Uruguay has been the exception in Latin America in 2020.
“Uruguay was proactive with multilaterals and bided its time in bond markets,” says one DCM banker. “It was the right choice.”
By June, when Uruguay did issue, it was the last LatAm investment grade sovereign to do so this year. And it took an unusual path: $1.6bn-equivalent of its $2bn deal was in local currency — via a rare global inflation-linked bond.
“It is never easy to do pesos,” says one LatAm syndicate banker. “They timed it brilliantly.”
While the rest of the region fails to control Covid-19, Uruguay had — as of October 7 — suffered just 49 deaths, and without a mandatory lockdown. Herman Kamil, director of the debt management office, credits “Uruguayan policymakers’ deft management of the pandemic” for “building resilience under extreme uncertainty, helping Uruguay become the first LatAm sovereign to issue in its own currency since the onset of the pandemic”.
The deal required “active, broad engagement with investors” in the run-up to the trade, “with close co-ordination between ministry of finance and central bank staff”, says Kamil.
Uruguay now “plans to continue de-risking its sovereign debt portfolio” by increasing the local currency share.
“One way is to fund in local currency, with a focus on increasing liquidity and developing the international yield curve,” says Kamil. “We are also carrying out currency conversions of our dollar debt with multilaterals at fiscally-sustainable rates.”