Uruguay: Economy

Uruguay's economy remains dependent on agriculture and services. Agriculture and agri-industry account for 12% of GDP, and for about 70% of total exports. Leading economic sectors include commerce, agriculture and agri-industry (meat processing, wood pulp, rice, soybeans, and wheat) and construction. Though still small, the information software industry is growing rapidly. There are 12 free trade zones, three of which are dedicated to services (for example, financial, software, call centers, and logistics). Uruguay offers U.S. firms significant advantages as a MERCOSUR-region distribution platform.

In 2002, Uruguay went through the steepest economic and financial crisis in recent history, which developed mostly from external factors. Devaluation in Brazil in 1999 made Uruguayan goods less competitive, and an outbreak of foot and mouth disease in 2001 curtailed beef exports to North America. Starting in late 2001, an economic crisis in Argentina undermined Uruguay's economy, with exports to Argentina and tourist revenues falling dramatically. In mid-2002 Argentine withdrawals from Uruguayan banks started a bank run that was overcome only by massive borrowing from international financial institutions. This, in turn, led to serious debt sustainability problems. A successful debt swap helped restore confidence and significantly reduced country risk.

Uruguay's economy resumed mild growth in 2003--with a 0.8% rise in GDP--and has grown robustly since then, with annual average rates of 6.5% in 2004-2008. Growth has been led by private consumption--which followed the recovery in employment and wages--and exports, partially due to strong commodity prices. The global financial crisis slowed growth, but Uruguay managed to avoid a recession and keep a positive growth rate of 2.9% in 2009. Robust growth of 8.5% was expected for 2010, and the Government of Uruguay forecasts annual growth of about 4.0% for 2011-2015.

Uruguay has traditionally favored substantial state involvement in the economy, and privatization is still widely opposed. Recent governments have carried out cautious programs of economic liberalization similar to those in many other Latin American countries. They included lowering tariffs, controlling deficit spending, reducing inflation, and cutting the size of government. Uruguay's economy is based on free enterprise and private ownership. In spite of some de-monopolization over the past several decades, the state continues to play a major role in the economy, owning either fully or partially companies in insurance, water supply, electricity, telephone service, petroleum refining, airlines, postal service, railways, and banking.

Uruguay has largely diversified its trade in recent years and reduced its longstanding dependency on Argentina and Brazil. It is a founding member of MERCOSUR, the Southern Cone trading bloc also composed of Argentina, Brazil, and Paraguay. The MERCOSUR Secretariat is located in Montevideo.

Uruguay enjoys a positive investment climate, with a strong legal system and open financial markets. It grants equal treatment to national and foreign investors and, aside from very few sectors, there is neither de jure nor de facto discrimination toward investment by source or origin. Investments are allowed without prior authorization, and there is fully free remittance of capital and profits. A decree passed in 2007 provides significant incentives to local and foreign investors. Domestic investment and foreign direct investment (FDI), which have been traditionally low, increased significantly in recent years. About 100 American firms operate in Uruguay and, according to the U.S. Department of Commerce, the stock of U.S. direct investment amounted to $2.9 billion in 2009.
 

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