Uruguay

Politics:

• Analysis

  Uruguay politics: Quick View – Political recriminations over Pluna

  Event

  Political recriminations over the controversial failed auction of the assets of bankrupt airline Pluna have continued in recent weeks. The minister of economy and finance, Fernando Lorenzo, and the minister of transport and public works, Enrique Pintado, were recently summoned to appear before the Senate to explain the handling of Pluna's bankruptcy.

  Analysis

  Over the course of 19 hours, Mr Lorenzo and Mr Pintado faced severe questioning over their roles in a flawed auction process that has ended with no buyers for Pluna's aircraft, leaving the government holding a large bill from the airline's creditors and leaving Uruguay with very few air connections during a key tourist season. Although most criticism came from the centre-right opposition Partido Colorado (PC) and Partido Nacional (PN), legislators on the left of the ruling Frente Amplio (FA) coalition notably failed to support the ministers.

  Mr Lorenzo and Mr Pintado are both from the centrist Frente Líber Seregni (FLS) faction of the FA. Until now, the FLS has had an excellent reputation for economic management, even as the popularity ratings of the president, José Mujica, have suffered as a result of discontent over the government's performance on issues such as security and education reform. The Pluna affair has now seriously damaged the prestige of the government's economic team. Although both men held on to their posts, they were forced to apologise publicly.

  A weaker FLS could have important electoral implications. As the moderate wing of the FA, the FLS is crucial to the coalition's ability to attract centrist voters, who might otherwise opt for the PN or PC. In this context, the results of the latest public opinion poll conducted by polling firm Cifra in early November were unsurprising. The poll showed that the FA's support had fallen to 36%, from 40% a year earlier. The percentage of undecided voters remained unchanged at 24%, and hence all 4 percentage points lost by the FA went to the opposition parties. Support for the PN was 22%, with the PC at 17% and that the Partido Independiente at 3%.

  November 22, 2012

• Background

  Uruguay: Constitution and institutions

  The 1966 constitution was modified in 1996

  The 1966 constitution was restored at the end of the military regime in 1985 and was modified in 1996. The constitution provides for a division of power between the executive, the legislature and the judiciary. Executive power is vested in the president, who is elected every five years, and his ministers. Elections for the presidency and Congress are held every five years under proportional representation using a system of closed lists. The October 1999 elections were the first to be conducted under revised constitutional rules enacted in 1997. The new system requires each party to submit only one presidential candidate, chosen at party primaries six months before the presidential poll. If no candidate secures 50% of the vote in the first round, there is a second-round run-off between the two leading candidates one month later. Consecutive presidential re-election is not allowed. The bicameral Congress consists of a 99-member House of Representatives (lower house) and a Senate (upper house) comprising 30 senators, plus the vice-president.

  The highest judicial authority is the Supreme Court of Justice, made up of five members elected by the two legislative houses voting jointly.

  Local elections for municipal and provincial authorities, previously held at the same time as the general election, now take place six months later. The next presidential election will be in October 2009 and the next municipal election in May 2010, enabling voters to choose candidates from different parties. The new rules have simplified the voting system and strengthened the legitimacy of the president by ensuring that he enters office with an absolute majority of the popular vote.

  February 06, 2008

• Structure

  Uruguay: Political structure

  Official name

  Oriental Republic of Uruguay

  Form of government

  Presidential

  The executive

  The president, who is directly elected for a five-year term, appoints a council of ministers, comprising the ministers of administrative departments and their deputies; the vice-president is president of parliament

  Head of state

  Elected president; José Mujica, assumed office on March 1st 2010 for a five-year period that will end in March 2015

  National legislature

  Bicameral parliament elected for five-year terms by proportional representation; 31-member Senate (the upper house), 99-member Chamber of Deputies (the lower house)

  Legal system

  Supreme Court elected by the legislature; the Supreme Court nominates all other justices

  National elections

  Presidential and parliamentary elections held on October 25th 2009; a second-round presidential election on November 29th 2009 was won by Mr Mujica; the next presidential and parliamentary elections will be held in October 2014; the last municipal elections were held in May 2010; the next municipal elections are due in May 2015

  National government

  Mr Mujica governs with the support of the Frente Amplio (FA), a broad coalition of 21 political groups ranging from the centre-left to the radical left. The main parties in the FA are the Movimiento de Participación Popular (MPP); the Frente Liber Seregni (FLS), the Partido Socialista (PS) and the Vertiente Artiguista (VA)

  Main political organisations

  Government: Frente Amplio (FA)

  Opposition: Partido Nacional (PN), Partido Colorado (PC), Partido Independiente (PI)

  President: José Mujica Cordano (FA)

  Vice-president: Danilo Astori (FA)

  Key ministers

  Defence: Eleuterio Fernández Huidobro (FA)

  Economy & finance: Fernando Lorenzo (FA/FLS)

  Education & culture: Ricardo Ehrlich (FA/MPP)

  Foreign affairs: Luis Almagro (FA/MPP)

  Housing & environment: Graciela Muslera (FA/MPP)

  Industry, energy & mining: Roberto Kreimerman (FA/PS)

  Interior: Eduardo Bonomi (FA/MPP)

  Labour & social security: Eduardo Brenta (FA/VA)

  Livestock, agriculture & fishing: Tabaré Aguerre (FA/Independent)

  Planning & budget: Gabriel Frugoni (FA/MPP)

  Public health: Jorge Venegas (FA/PCU)

  Social development: Daniel Olesker (FA/PS)

  Tourism & sports: Héctor Lescano (FA/FLS)

  Transport & public works: Enrique Pintado (FA/FLS)

  Central Bank president

  Mario Bergara (FA/independent)

  October 03, 2012

• Outlook

  Uruguay: Key developments

  Outlook for 2013-17

  • The president, José Mujica, of the centre-left Frente Amplio (FA) coalition, will struggle to implement key elements of his agenda, such as public-service reform, owing to pressure from the left of the coalition and powerful unions.
  • Policymaking will remain supportive of business, coupling prudent macroeconomic policy with a welcoming investment environment, but there will be pressure from the left of the FA for greater focus on income redistribution.
  • After slowing in 2012 on the back of a weaker global economy, the Economist Intelligence Unit expects annual GDP growth to accelerate gradually over the forecast period, owing to strong investment flows, to reach 4.5% in 2017.
  • We expect a gradual disinflationary trend to continue, but inflation will exceed its target range of 4-6% for some time, ending 2012 above 7% and 2013 above 6%, reflecting firm demand and high wage indexation.
  • Strong fundamentals and improving terms of trade mean that the real effective exchange rate will be some 20% stronger in 2013-17 than its long-term average (1990-2010), although continued volatility is possible.
  • Although the current account will remain in deficit throughout the forecast period, reflecting continuing trade and income imbalances, it will remain manageable and will be covered by foreign direct investment inflows.

  Review

  • Just over midway through his five-year term of office, Mr Mujica's opinion poll ratings have fallen to all-time lows. According to a poll by Cifra, approval of his administration fell from 40% in July to 36% September.
  • Relations with Argentina have hit a new low on the back of a dispute over the dredging of the Martín García Canal, one of two waterways in the Río de la Plata estuary and a key freight transport link for Uruguay.
  • After several years of planning, the government has called for bids for the construction and operation of a liquefied natural gas regasification facility, to help to meet the country's growing energy needs at a lower cost.
  • The government has made upward revisions to its fiscal deficit and gross public debt targets. The public debt will still decline but is now expected to remain over 40% of GDP. Creditworthiness should, however, remain sound.
  • Amid renewed peso appreciation since late June, the Central Bank has introduced a reserve requirement of 40% on foreign purchases of Central Bank notes, intended to discourage inflows of speculative capital.
  • Inflation remained well above target in August, at 7.9%, reflecting high food prices as well as strong demand-side pressures.

  October 03, 2012

Economy:

• Background

  Uruguay: Economic background

  Main economic indicators, 2007
  (Economist Intelligence Unit estimates unless otherwise indicated)
  Real GDP growth (%)	7.2
  Consumer price inflation (av; %)	8.1(a)
  Current-account balance (US$ m)	-430.8
  Exchange rate (av; Ps:US$)	23.45(a)
  Population (m)	3.3
  External debt (year-end; US$ m)	11,823.0
  (a) Actual.
  Source: Economist Intelligence Unit, CountryData.

  Download text file (csv format)

  February 06, 2008

• Structure

  Uruguay: Economic structure

  Data and charts: Annual trends charts

  
  

  

  October 03, 2012

• Outlook

  Uruguay: Country outlook

  Uruguay: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Although the political scene remains stable and the government retains its congressional majority, persistent tensions within the ruling centre-left Frente Amplio (FA) coalition will create difficulties for the government as it attempts to implement key reforms to the civil service and the education system, upgrade the country's creaky infrastructure, and halt a deterioration in the security environment. To drive his agenda forward, the president, José Mujica, faces a delicate balancing act in maintaining good working relations both with members of his own coalition and also with the right-wing opposition. The Economist Intelligence Unit expects that, although there will be pressure from the left of the coalition to focus more on social policies aimed at reducing poverty and improving income distribution, the government will, overall, pursue sound economic policies (an assumption that is supported by the recent election of a moderate centrist as leader of the FA). We also believe that, despite current internal problems, a split in the ruling coalition is unlikely, given its history of electoral success. However, the president will continue to require opposition support to meet many policy goals, including improvements to public security. The centre-right opposition will be hoping to recapture key centrist voters and will therefore want to be seen to be working with the government to find a solution to problems such as security. However, the opposition will become more obstructionist as the 2014 presidential election nears, damaging government effectiveness.

  ELECTION WATCH: There are no elections scheduled for 2012-13, but all the main political parties will be gearing up for the October 2014 general elections as the forecast period progresses. We assume that divisions within the opposition will persist, allowing the FA to maintain a leading position heading into the elections, despite its own internal discord. Tabaré Vázquez, a pragmatic, unifying figure in the FA coalition and a popular former president (2005-10), will be the clear front-runner in the presidential race, if he decides to stand. He shocked the FA leadership by announcing his retirement from politics in 2011, but in recent months has signalled a return to political activity. Despite the fact that he will be 74 by 2014, Mr Vázquez's re-emergence at the forefront of the FA has been eagerly awaited by the coalition leadership, who recognise his ability to mobilise independent voters, as well as the FA faithful. We have long based our forecasts on the assumption that Mr Vázquez will run again in 2014 and win, providing continuity for a policy framework that combines orthodox macroeconomic policy with an emphasis on social development. If he did not run, we would still, on balance, expect the FA to win re-election. Pedro Bordaberry, of the opposition Partido Colorado, is emerging as a strong potential challenger, but he appears too far to the right of the political spectrum to be able to win the presidency in a country with a large base of centrist and centre-left voters. However, a presidential contest without Mr Vázquez would potentially be much closer, and would introduce greater uncertainty into our forecasts.

  INTERNATIONAL RELATIONS: Relations with Uruguay's partners in the Mercado Común del Sur (Mercosur, an imperfect customs union) are becoming increasingly problematic. Policy unpredictability and trade protectionism in partner countries, particularly Argentina, have risen. Tensions with Argentina were recently heightened by a dispute over joint management of the Río de la Plata estuary, a key waterway and transport link for both countries, which centres on persistent delays to much-needed works to increase transport capacity on the Uruguayan side of the estuary. Reflecting difficulties in relations with Argentina, Uruguay is looking increasingly to Brazil as a trade and investment partner, notably to help finance some major infrastructure projects. However, periodic tensions may occur even with Brazil, given a rising tendency towards trade protectionism throughout Mercosur, in a context of weakening global trade flows and growing currency appreciation pressures in the region.

  POLICY TRENDS: Policymaking will, overall, continue to be supportive of business, combining prudent macroeconomic policy with a generally welcoming environment for investment. That said, there will be continuing pressure from the left of the ruling coalition for the government to focus more of its efforts on poverty reduction and income redistribution. This will increase pressure to raise public expenditure, which could complicate efforts to reduce the public debt ratio and combat inflation (which is currently well above the target range of 4-6%) and risks giving rise to inconsistencies in the government's investment promotion policy. The government has, for example, introduced a controversial tax on agricultural landholdings, which was viewed as an attempt to appease the extreme left of the governing coalition. We continue to believe that the generally orthodox, pro-business stance is not at risk, but clear policy differences within the coalition introduce some uncertainty into our forecasts. Meanwhile, questions are increasingly being raised about policy effectiveness in the Mujica administration. The government has recently pushed through framework legislation to guide public-private partnerships (PPPs), which it hopes will boost private investment in infrastructure. However, implementation of infrastructure upgrades under the new PPP framework has been disappointing and will need to improve if infrastructure bottlenecks are not to prove a constraint to growth in the longer term.

  ECONOMIC GROWTH: In the short term, economic activity will continue to be affected by relatively weak growth in Uruguay's main trade partners, Argentina and Brazil, and by concerns over the global economy, which have hit investment and employment prospects this year, causing GDP growth to slow to an estimated 3.8%. However, the longer-term outlook remains solid. Although it has moderated, fixed investment continues to be supported by some large-scale foreign investment projects and public-private investment in infrastructure (which will be boosted by recent framework legislation to facilitate PPP projects). These investments will gather pace over 2013-14 and, combined with increased consumer confidence (supported by solid employment and real wage growth), should set the stage for higher rates of GDP growth in the medium term. By the end of the forecast period in 2017, we expect annual GDP growth to have risen to 4.5%.

  INFLATION: Inflation has been very slow to come down from its end-2011 peak of 8.6%; in August it came in at 7.9%, still well above the 4-6% target range. Rising food prices continue to place upward pressure on inflation. Food prices rose by 1.7% in August alone, bringing 12-month food price inflation to 8.2%. However, services price inflation also remains high, suggesting that high inflationary expectations are entrenched. This reflects still-solid domestic demand, which is allowing producers to pass on high input costs to consumers, as well as second-round wage effects (there is a high level of wage indexation in Uruguay). However, suggesting some moderation going forward, producer prices fell in August, and there have also been some signs of a slowdown in wage growth amid the ongoing economic deceleration. As a result, we expect the gradual disinflationary trend to continue. Nevertheless, inflation will remain above target for some time, ending 2012 above 7% and 2013 above 6%. On the assumption that confidence in the inflation-targeting regime increases gradually, we expect inflation to continue to moderate later in the forecast period, to 4.5% at end-2017. However, there are upside risks to this forecast, as inflation has proved persistently "sticky" in Uruguay and it could prove difficult to bring inflationary expectations closer to OECD levels, even in the medium term.

  EXCHANGE RATES: Volatility in the foreign-exchange market related to swings in investor sentiment has continued in recent months. Having depreciated in the first half of 2012, the peso has been appreciating again since June, prompting the Banco Central del Uruguay (BCU, the Central Bank) to impose capital controls, in the form of a reserve requirement of 40% on foreign purchases of Central Bank notes. As the US embarks on another round of quantitative easing, we expect further appreciation pressures, despite new controls. Apart from record low OECD interest rates, pressure for appreciation will stem from Uruguay's strong fundamentals. We forecast strong inflows of foreign direct investment (FDI) and portfolio capital thoughout 2013-17, as well as an acceleration of export growth late in the forecast period. On this basis, we continue to forecast modest nominal peso appreciation throughout the forecast period, as a result of which the real effective exchange rate will be around 20% stronger in 2013-17 than its long-term (1990-2010) average. The likelihood of huge swings in investor sentiment will, however, introduce substantial risks to our short-term currency forecasts and the possibility of periods of currency depreciation cannot be discounted.

  EXTERNAL SECTOR: The current-account deficit will continue to widen in 2013-15, but will remain manageable, at an annual average of around 3% of GDP. The trade deficit will continue to widen as imports are drawn in by large investment projects, while exports are hit by growing competitiveness problems. However, as new investment projects come on stream in the second half of the forecast period, we expect a renewed narrowing of the current-account deficit as a percentage of GDP. Combined with strong inflows of FDI, this will help to maintain a healthy level of foreign reserves coverage throughout the forecast period.

  October 01, 2012

• Forecast

  Uruguay: 5-year forecast summary

  Outlook for 2012-16: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2011a	2012b	2013b	2014b	2015b	2016b
  Real GDP growth	5.7	3.8	4.0	4.2	4.4	4.4
  Industrial production growth	-1.0c	3.1	3.3	3.6	4.3	4.3
  Gross agricultural production growth	4.2	0.6	5.0	5.4	4.7	4.7
  Unemployment rate (av)	6.0c	6.0	5.9	5.9	5.8	5.6
  Consumer price inflation (av)	8.1	7.7	6.7	6.0	4.1	3.8
  Consumer price inflation (end-period)	8.6	7.3	6.6	4.7	3.6	4.0
  Short-term lending rate	9.8c	11.0	10.8	9.6	9.1	9.5
  Non-financial public-sector balance (% of GDP)	-0.8c	-1.5	-1.1	-0.9	-0.7	-0.7
  Exports of goods fob (US$ bn)	9.3	9.6	10.3	10.7	11.1	12.0
  Imports of goods fob (US$ bn)	10.4	10.9	11.8	12.5	13.3	14.1
  Current-account balance (US$ bn)	-0.9	-1.3	-1.6	-1.9	-2.1	-2.2
  Current-account balance (% of GDP)	-1.9c	-2.8	-3.1	-3.3	-3.4	-3.3
  External debt (year-end; US$ bn)	11.6c	11.5	12.1	13.0	14.0	14.9
  Exchange rate Ps:US$ (av)	19.31	20.87	22.02	21.88	21.62	21.43
  Exchange rate Ps:US$ (end-period)	19.90	21.80	22.02	21.76	21.56	21.37
  Exchange rate Ps:€ (end-period)	25.75	28.01	27.63	26.87	27.06	26.91
  Exchange rate Ps:SDR (end-period)	31.16	33.47	33.35	32.58	32.38	31.96
  a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.

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  July 20, 2012

View detailed map

Country Briefing

Land area

176,065 sq km, of which 80% is suitable for agricultural or livestock production

Population

3,334,052 (end-June 2008; official estimate)

Main towns

Population in '000 (2004 census)

Montevideo (capital): 1,326

Canelones: 485

Maldonado: 140

Salto: 123

Colonia: 119

Paysandú: 113

Climate

Temperate

Weather in Montevideo (altitude 22 metres)

Hottest month, January, 17-28°C; (average daily minimum and maximum); coldest month, July, 6-14°C; driest month, February; 66 mm average rainfall; wettest month, April, 99 mm average rainfall

Language

Spanish

Measures

Metric system

Currency

1 peso (Ps) = 100 centésimos; average exchange rate in 2011: Ps19.3:US$1

Time

3 hours behind GMT

Public holidays

January 1st (New Year's Day); January 6th (Epiphany); February 27th-28th (Carnival); Maundy Thursday and Good Friday; April 17th (Landing of the 33 Patriots Day); May 1st (Labour Day); May 22nd (Battle of Las Piedras Day); June 19th (birth of General José Artigas); July 18th (Constitution Day); August 25th (Independence Day); November 2nd (All Souls' Day); Christmas Day

March 06, 2012