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Economy (2002 unless noted)
GDP: $12.3 billion.
Annual growth rate: -11.0% (2002); -3.1% (2001), -1.4% (2000).
Per capita GDP: $3,666.
Natural resources: Arable land, pastures, hydroelectric power, granite, marble.
Agriculture (9% of GDP): Products--beef, wool, rice, wheat, barley, corn.
Industry (16% of GDP): Types--meat processing, wool, textiles, leather, leather apparel, beverages and tobacco, chemicals, cement, petroleum refining.
Services: 70% of GDP.
Trade: Exports--$1.9 billion: meat, wool, hides, leather, wool products, fish, rice, furs. Major markets--MERCOSUR Southern Cone Common Market 33% (Brazil 23%, Argentina 6%, Paraguay 3%); European Union 24%; U.S. 7%. Imports--$2.0 billion: machinery, chemicals, fuel, vehicles. Major suppliers--MERCOSUR 48% (Argentina 28%, Brazil 20%); EU 18%; U.S. 8%.
Economy of Uruguay
Uruguay's economy remains dependent on agriculture. Although agricultural production accounts for only 9% of the gross domestic product (GDP), agricultural-related products make up more than half of the country's exports. The industrial sector, which produces 16% of GDP, is largely based on the transformation of agricultural products. Leading economic sectors include meat processing, agribusiness, wool, leather production and apparel, textiles, and chemicals.
The Batlle administration has been confronted with serious economic problems. 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. Exports to Argentina and tourist revenues fell 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. In March 2003, the government started negotiating "voluntary" rescheduling of debt with bondholders, and signed a new agreement with the IMF that promised additional fiscal austerity.
In June 2002, the government eliminated its decade-long exchange rate band, allowing the peso to float freely. The dollar rose 60% against the peso in the second half of the year. While this made exports more competitive, a credit crunch following the banking crisis contributed to preventing economic recovery. The devaluation also lowered consumer purchasing power and increased inflation from about 4% in 2001 to 26% in 2002.
The government's strategy to stimulate growth is based on increasing exports, both to traditional partners in MEROCSUR and to the EU and North America. 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.
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. The Lacalle administration implemented a 1991 state company reform law, though privatization was partially stalled when voters rejected the sale of the state telephone company, ANTEL, in a 1992 referendum.
A February 2001 law provides for demonopolization of telecommunications and creates the framework for regulatory offices for telecommunications and electricity. The government has demonopolized oil refining, but oil imports will remain a monopoly until 2006. In 2002, the oil company union and the leftist opposition gathered enough signatures to subject energy market liberalization to a public referendum. Other former state sectors have been partially liberalized, including insurance, mortgages, road construction and repair, piped-gas distribution, energy generation, water sanitation and distribution, cellular telephones, and airline transportation.