NS4540 Winter Term 2018 Uruguay Economy Europa brazil economy

Uruguay WEF I

Uruguay WEF II

Uruguay WEF III

Overview I Uruguay has a number of features that set it apart Average annual population growth of 0.1% was the lowest in Latin America Proportion of people living in urban areas in 2013 – 92% was the highest in the region In 2014 Uruguay had one of the highest GDP per capita incomes at US$20,597 ppp However due principally to the 2001-02 economic crisis in Argentina poverty grew dramatically in 2002-04 affecting almost 40% of the population in 2003 declined to 9.7% by 2014 In region characterized by very high levels of inequality, Uruguay the most equal society in Latin America

Overview II Country developed a modern economy with a strong social security system on an almost exclusively agricultural base From the late 19th century Uruguay developed as an agricultural export economy – wool, beef hides mainly to European countries With favorable natural conditions and a low population density, and export values high Uruguay was transformed into a stable democratic welfare state under President Ordonez (1903-1907) europa

Overview III Government policy encouraged domestic manufacturing and protection was intensified in 1930s and after WWII Strategy of import substitution was exhausted in mid 1950s Rate of growth of exports was low and Small size of domestic market limited economies of scale A period of economic stagnation followed and continued into the early 1970s Social unrest led to the army assuming power Economic policies of the military regime after 1973 based on a reduction of public sector and Incentives to non traditional exports, helped stimulate GDP growth but with high inflation

Overview IV Economy always linked closely to economies of Argentina and Brazil Formation in 1995 of the Southern Common Market MERCOSUR accentuated this influence GDP growth resumed in the 1990s but economy entered a decline towards the end of the decade due to Devaluation of the Brazilian currency Recession in Argentina and Persistently low prices for agricultural exports In 2001 production drastically affected by an outbreak of foot-and-mouth disease In 2002 country experienced major economic crisis caused by Argentina’s default

Overview V In 2002-03 economy contracted by 11.2% Unemployment reached almost 20% and Gross public sector debt to GDP increased to over 100% External debt restructuring and international financial assistance led to a swift recovery with growth of 2.4% in 2003 In common with other countries in region Uruguay benefitted from high commodity prices and in Uruguay’s case compounded by High levels of foreign direct investment FDI Economic Diversification, and Productivity gains

Overview VI For next decade Uruguay economy growth at annual average of 5.4% compared to LAC average of 3.4% Per capita income has risen by 75% since 2002 while poverty and inequality have declined to an historic low While not immune to the impact of the 2008-09 global financial crisis, Uruguayan economy was remarkably resilient 2.9% in 2009 8.9% in 2010 and 5.7% in 2011 Growth slowed to 3.9% in 2012 – mainly reflecting sharp fall in economic growth in Brazil and Argentina Jumped to 5.1% in 2013 before slowing down due to poor economies in Argentina and especially Brazil

Overview VII

Assessment I Although 2005 international financial markets concerned with inauguration of a new left-wing government led by Tabare Vazquez regime initiated fiscal orthodoxy and structural reforms Prudent fiscal policies and proactive management of external debt led to significant reduction in the debt-to-GDP ratio Improvements in bank regulation and high international reserves all contributed to economic confidence. Government of Present Jose Mujica (2010-15) largely continued orthodox economic policies of previous administration President Vazquez back in office in 2015 but growth slowing down due to decline in commodity prices

Assessment II Economy remains vulnerable to conditions in Argentina and Brazil Domestically a number of concerns High inflation and elevated fiscal deficit indicated need for a fiscal adjustment and lower wage settlements High levels of industrial conflict and rigid wage settlements have negatively affected business climate Low unemployment levels were resulting in shortages of skilled labor Country’s infrastructure remained in urgent need of investment

Assessment III Although Presidents Vazquez and Mujica significantly increased investment in education Indicators that this input has not improved quality Uruguay’s traditionally high educational standards are starting to lag behind those of other Latin American countries To ensure attainment of a more sustainable path, government must restrict increases in public spending and wage settlements improve infrastructure and address failings in the education and training of the workforce If these issues are dealt with successfully, Uruguay should be able to sustain a turnaround in economic performance over the medium term.