Uruguay Goes to Polls With Investors Wary of Pension Overhaul

(Bloomberg) — Voters in Uruguay are set to cast their ballots Sunday in a presidential race that’s being overshadowed by a contentious pension overhaul.

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While potential fiscal fallout from the social-security proposal has investors on edge, the main campaign features a resurgent left-wing party seeking to unseat the ruling center-right coalition by tapping into angst over crime and the economy.

Polls show the opposition Broad Front presidential candidate Yamandu Orsi handily beating his closest rival, Alvaro Delgado of the incumbent coalition’s National Party, but falling short of the absolute majority needed to avoid a runoff election against Delgado on Nov. 24.

“The most likely outcome is we don’t elect a president on Sunday and go to a second round,” said Mariana Pomies, director at pollster Cifra.

The presidency and all seats in Congress are up for grabs in general elections held once every five years in which voting is obligatory for Uruguay’s 2.7 million registered voters. President Luis Lacalle Pou is prevented by law from seeking a second consecutive term.

Protest votes for smaller parties could deny both the Broad Front and the incumbent coalition control of the lower house and possibly even the Senate, Pomies said. But while recent campaigns elsewhere in Latin America have seen populists with radical plans putting society on edge, Uruguay is defying that trend with the major parties fielding predictable mainstream politicians.

Orsi, a two-term governor of the second most populous department in the country of 3.4 million people wedged between Argentina and Brazil, has pledged to boost economic growth, fight crime and overhaul the social security system. The 57-year-old former history teacher tapped respected economist Gabriel Oddone to serve as his finance minister.

Delgado, who served as a senior aide to Lacalle Pou, promises to continue the National Party’s pro-business policies to make Uruguay the most developed country in Latin America by 2030. He has also pledged to crack down on crime amid a surge in murders since 2022. The 55-year-old former lawmaker named ex-central bank chief Diego Labat as his likely finance chief.

Uruguay votes amid the backdrop of an economy the central bank sees growing 3.5% this year, after a decade of growth that averaged about 1% a year. The post-pandemic recovery, however, hasn’t lifted all boats equally.

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Poverty affects almost a fifth of children and thousands of families still live in shanty towns. A growing fleet of electric vehicles shares the streets of the capital with horse drawn carts driven by working poor rummaging through the trash in wealthier districts of Montevideo. The Lacalle Pou administration has struggled to contain violent crime with 10.7 murders for every 100,000 inhabitants last year, according to government data. That’s almost double the same measure in the US.

“Public perception of the economy doesn’t coincide with the data. About a third of Uruguayans think the economy is bad, a third think it’s good and the other third think its neither good nor bad,” Pomies said.

Uruguayans will also be asked to vote Sunday to amend the constitution to radically overhaul the social security system and allow police to enter homes with a court order at night. Voting for these proposals, technically known as plebiscites, is optional.

The pension vote has spooked investors who fear it would lead to wider deficits and weaken local capital markets by abolishing pension funds that manage more than $23 billion. It would also increase minimum payouts and lower the retirement age.

Support for social security reform polls just below the absolute majority it needs to pass. But with a large share of voters still undecided, investors are fretting Uruguay might lose its allure as a haven for financial stability. Orsi and Delgado oppose the proposal, though the Broad Front hasn’t adopted a formal party position.

A plebiscite win could see Uruguay’s peso depreciate as much as 10% in the days after the vote and trigger a selloff in government bonds, according to Sebastian Arena, head of sales and trading at local brokerage Nobilis, which manages assets for $1.3 billion.

“In the event the plebiscite isn’t approved, the base case is an appreciation of the peso and an increase in the price of inflation-linked and nominal peso bonds,” he said in an interview.

Polls open Sunday from 8:00 a.m. to 7:30 p.m. local time with the Electoral Court expected to publish the preliminary results later that evening.