Uruguay become independent from Spain after a revolt that began in 1811, but the nation then joined a federation with Argentina. In 1821, Brazil annexed Uruguay, but the country achieved full independence in 1828 after an Argentine-backed revolt. In the early 20th century, President José Batlle Y Ordonez led the creation of the first welfare state in Latin America, with broad government participation in the economy and the social system. This tradition continues to influence Uruguay.
Political turmoil led to a new constitution in 1967, and in 1973, the military took control of the government, remaining in power until 1984, when Maria Sanguinetti was elected president. Under the Sanguinetti administration, the government carried out reforms that stabilized the economy and reinforced democracy. Luis Alberto Lacalle succeeded Sanguinetti in 1989. It was he who negotiated inclusion of Uruguay in MERCOSUR and began efforts to curb inflation and cut government involvement in the economy. His economic reform efforts were curtailed in 1992, when voters rejected a plan to privatize ANTEL, the national telephone company. Sanguinetti was reelected in 1994 and oversaw constitutional changes in 1996. In 1999, Jorge Batlle was elected president on a platform that promised to increase international trade and expand economic reforms, including reducing the size and scope of government.
Uruguay is a constitutional democracy with a political system similar to that of the United States. Elected for a 5-year term, the president is the head of state and chief of the government. If no presidential candidate receives an absolute majority of 51 percent of the vote, there is a runoff election in which only the top 2 candidates compete. The president chooses the cabinet and generally sets government policy, subject to oversight from the nation's legislature. The legislative branch of government is the bicameral (2-chamber) General Assembly. The upper house, the Chamber of Senators, has 30 members who serve 5-year terms. The lower house, the Chamber of Representatives, has 99 members who also serve 5-year terms. The judicial branch of government is headed by a national Supreme Court. The country is organized into 19 regional departments or states, each headed by an elected governor.
All of Uruguay's major political parties support economic reforms and free trade. There are 3 main political parties. The Colorado Party, which traditionally represented the urban areas and the working class, is led by President Batlle and ex-President Sanguinetti. In the 1990s, this party increased its support for smaller government and less state control. The National Party, or Blanco, is the main party of rural voters, and is generally regarded as the most conservative of the nation's parties and a staunch supporter of free enterprise. Ex-President Lacalle belonged to Blanco. Encuentro Progresista-Frente Amplio (EP-FA) is a leftist coalition that supports limited free trade and private enterprise, but favors the implementation of an income tax as a means to redistribute wealth and increase social spending.
In 1998, the government's budget amounted to US$4.6 billion, while its revenues were US$4.4 billion. Because of the economic downturn in 1999, government revenues fell and the nation's deficit increased 4-fold to 3.9 percent of GDP. The government projects a reduction of the deficit to 1 percent by the end of 2001. Uruguay has made commitments to the International Monetary Fund (IMF) not to raise taxes in its effort to reduce the deficit and to pay down the debt in exchange for a short-term credit line of US$200 million to be used in fighting inflation. Uruguay has one of the proportionally lowest defense budgets of all of the Latin American nations, spending just US$172 million, or 0.9 percent of GDP, on defense.
Since the late 1980s, successive administrations have tried to reduce the role of government in the economy by privatizing government-owned businesses, such as PLUNA, the national airline, Montevideo Gas Company, and most port services. Government-owned enterprises account for 18 percent of GDP and the same percentage of total employment. The government continues to own a variety of businesses, including those engaged in insurance, water supply, telecommunications, electricity, railways, banking, and petroleum refining. The nation's social security system, which prior to 1996 had a deficit equal to 6 percent of GDP, was successfully privatized. By allowing individuals to join private pension plans, privatization has reduced the social security deficit to 1 percent of GDP. Nationwide, 550,000 people, one-third of the workforce, have opted for the private plans that now manage $700 million.
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