Uruguay - Economic development

Monopolies have traditionally been permitted in the fields of banking and insurance, postal services, ports, water, light and power, telephone services, and fuels. Industrial and commercial activities of the state must be organized as "autonomous entities." Other public services may be organized as autonomous entities, as decentralized services, or as divisions under a ministry. Exceptions to this policy are state-operated postal and telephone services, customs houses, port administration, and public health.

The Committee on Investment and Economic Development, established in 1960, published a 10-year plan for 1965–75 for production, investment, and consumption. The plan, stressing industrial development and external financing, was superseded in April 1973 by the National Development Plan for 1973–77, prepared by the Planning and Budget Office. This plan projected an annual growth rate of 3.8% in real gross domestic product (GDP), or 2.5% per capita; increases in exports and imports were projected at 10.1% and 14.9%, respectively. Domestic investment was to rise at an annual rate of 15.1%—a projection quite remote from the actual average annual increase of 3.2% realized during 1966–72.

After the severe slump of the early 1980s, the decisive actions by the new government injected life into the economy. In particular, restructuring the heavy domestic debt burden of the industrial and agricultural sectors increased confidence in the economy. Domestic investment rose sharply with some industries at full capacity.

The Lacalle administration continued the fiscal adjustment program in 1990 to reduce the budget deficit. A state enterprises reforms law passed in September 1991 permitted partial privatization of certain state-owned enterprises. Uruguay also became an important trade partner and provider of services to MERCOSUR countries. The flip side of this relationship was Uruguay's dependency on and vulnerability to economic developments in its neighboring countries. A slowdown in Brazilian growth and a recession in Argentina caused Uruguay's economy to slip into recession in 1995 and in 1998.

The Sanguinetti government continued the reforms of the previous administration. It also instituted a three-stage stabilization program in 1994. The plan increased consumption and payroll taxes, instituted a program designed to downsize government, and planned for long-term social security reform. This plan continued into the late 1990s with moderate success, but a recession hit in 1999 that exacerbated the problems of a state-monopolized economy dependent upon exports to Argentina and Brazil, and dependent on US dollars for the currency.

The financial crisis in Argentina in late 2001 and subsequent recession hurt exports and tourism in Uruguay, and Uruguay's banking crisis in 2002 was exacerbated by the situation in Argentina. In all, the Argentine economic crisis and its aftereffects caused a 10% contraction in Uruguay's economy. An outbreak of hoof-and-mouth disease among its cattle and an energy crisis in Brazil also adversely affected the economy. By 2002, the total debt stood at around $13.5 billion, some 65% of GDP, and the fiscal deficit stood at around 3% of GDP. Uruguay is diversifying its export base, has a well-run offshore financial center, and has significantly improved the structure of the economy. Foreign direct investment reached $248 million in 2001. In April 2002, the International Monetary Fund (IMF) approved a three-year $823 million (which was subsequently augmented) Stand-By Arrangement for Uruguay, due to expire in March 2005. Many formerly state-owned sectors had been liberalized by 2003, including insurance, mortgages, road construction and repair, piped-gas distribution, energy generation, water sanitation and distribution, cellular telephones, and airline transportation. Oil refining was demonopolized, but oil imports were to remain a monopoly until 2006.

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M.S. Frost
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Feb 27, 2010 @ 1:13 pm
Aside from Uruguay's continued economic dependence on the other MERCOSUR countries, its failure to encourage competition in the telecommunications/IT area hurts not only larger businesses but the entrepreneurial sector as well. This, probably more than anything else, has Uruguay off to a sluggish start in the 21st century. It would do well by following Chile's example of pursuing freer international trade (even if it means leaving MERCOSUR) and promoting a policy of more competitive domestic markets - especially in technology-related areas.

Uruguay is retarding its growth at a rate of 512kps.

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