URUGUAY
Key Economic Indicators
(Billions of U.S. dollars unless otherwise indicated) 1/ 2/

	2000	2001	2002
Nominal GDP	20.1	18.7	12.0
Real GDP Growth (pct)	-1.4	-3.1	-11.0
GDP Growth by Sector (pct):
Agriculture	-3.2	-5.0	2.0
Manufacturing	-2.1	-6.2	-11.0
Services	0.1	-0.5
Government	-0.2	-1.4	-2.0
Per Capita GDP (US$)	6	5,6	3,7
Labor Force (000s)	1,2	1,3	1,3
Unemployment Rate (pct)	13.4	15.2	16.0
Money and Prices (annual percentage
Money Supply Growth (M2)	2.8	-3.0	-8.0
Consumer Price Inflation	5.1	3.6	35.0
Exchange Rate (annual average)	12.1	13.3
Balance of Payments and Trade:
Total Exports FOB	2.3	2.1	1.9
Exports to U.S. (US$ millions)	180	171	137
Total Imports CIF	3.5	3.1	2.5
Imports from U.S. (US$ millions)	336	271	165
Trade Balance (FOB-CIF)	-1.2	-1.0	-0.6
Balance with U.S. (US$ millions)	-156	-100	-28
External Public Debt (Gross)	8.9	8.9	11.0
Fiscal Deficit/GDP (pct)	4.1	4.2	3.4
Current Account Balance/GDP (pct)	-2.8	-2.7	1.5
Debt Service Payments/GDP (pct)	4.7	6.7	9.3
Gold and Foreign Exchange Reserves (net)	2.4	2.6	2.7
Aid from U.S. (US$ millions)	2.8	1.2	1.5
Militar Aid from U.S. (US$ millions)	2.6	0.9	1.4
Aid from All Other Sources (US$ millions)	N/A	N/A	N/A

1/ Data in Uruguayan Pesos was converted into dollars at the average interbanking selling rate for each year.

2/ 2002 figures are all U.S. Embassy Montevideo estimates based on available data as of October 2002.

Sources: Uruguayan Central Bank and Uruguayan National Institute of Statistics (INE)

1. General Policy Framework

Uruguay is a market-oriented economy in which the State still plays a certain role. The economy performed well in the nineties but has been shrinking since 1999 as a result of regional instability (including the 1999 Brazilian devaluation and the 2001/2002 Argentine crisis), low commodity prices, the dissemination of foot-and-mouth disease, and poor economic expectations. Moreover, in early 2002 a massive withdrawal of Argentine deposits helped trigger a banking crisis that forced the Government of Uruguay (GOU) to reschedule dollar-denominated time deposits in public banks and to suspend the operations of four banks. Through substantial support from international financial institutions (i.e. IMF, Inter-American Development Bank, World Bank) and the U.S. Government, the GOU was able to weather the crisis. The banking situation appears to be improving gradually. Uruguay’s sovereign debt was rated Investment Grade between 1997-2001, but was downgraded five notches by the major risk rating agencies beginning in early 2002. Negative growth of about 11.0 percent is expected for CY2002, and future economic recovery will largely depend on conditions in Argentina and Brazil. Nevertheless, despite the ongoing economic crisis, social indicators are still outstanding by Latin American standards.

Uruguay is a founding member of MERCOSUR (the Southern Cone Common Market composed of Argentina, Brazil, Uruguay, and Paraguay, with Chile and Bolivia as Associate Members) and the geographical center of the bloc’s most densely populated and richest zone. Uruguay’s capital, Montevideo, is also the administrative capital of MERCOSUR. Although MERCOSUR integration fostered regional trade in the nineties, the bloc has faced harsh problems since late 1998. Uruguayan exports to bloc members fell from 55 percent of overall exports in 1998 to 40 percent in 2002. The economic crunch in Argentina, the imposition of protectionist measures in Argentina and Brazil, a war of incentives among bloc members to attract foreign investment, and unilateral changes in the MERCOSUR common external tariff all call into question MERCOSUR’s future.

The United States is Uruguay’s fourth largest trading partner after Argentina, Brazil and the European Union. The U.S. purchased eight percent of Uruguay's exports in 2001 and provided nine percent of its imports. The U.S. share of Uruguay's imports has increased slightly over the last decade and the Batlle administration vigorously favors expanding trade with the U.S. and the rest of NAFTA. According to a 1999 GOU study, the U.S. is the largest foreign investor in Uruguay, accounting for 32 percent of overall foreign direct investment.

The budget deficit remained high at roughly 4.0 percent of GDP from 1999-2001. As of July 2002, the fiscal imbalance grew to 5.3 percent of GDP as a consequence of reduced tax revenues, higher public expenditures and a lower GDP. The government passed three budget adjustment laws in CY2002 in an effort to meet the 3.4 percent fiscal target agreed upon with the IMF. Uruguay enjoyed fluid access to the international capital market in the nineties and financed its fiscal imbalances with sovereign debt. However, in 2002 the government had to seek assistance from international financial institutions (i.e. IMF, World Bank, etc.) due to difficulties it faced in selling additional debt in international markets.

Uruguay’s tax burden stands at over 30 percent of GDP. The tax system is highly dependent on a Value Added Tax that accounts for over half of overall tax revenues. As of October 2002, the government is gathering political support to launch major reforms that seek to simplify the tax system. There is no personal income tax, and the corporate income tax rate is 30 percent. There are certain tax benefits for local and foreignnvestment. The GOU grants equal treatment to national and foreign investors.

2. Exchange Rate Policy

From 1991-2002, the government pursued an exchange rate policy whose objective was to lower inflation. During this period, the government allowed the peso/dollar exchange rate to float within a certain range and kept the peso’s depreciation under set parameters. In June 2002, the government allowed the peso to float freely against the dollar, and the local currency depreciated 50 percent through October. Although the sharp depreciation is expected to foster exports, it is also hurting debtors’ ability to honor their obligations and driving up inflation. Inflation, which was 3.6 percent in 2001, is expected to rise to about 35 percent in CY2002. There are no restrictions on the purchase of foreign currency or the remittance of profits abroad, and foreign exchange can be freely obtained.

3. Structural Policies

Uruguay switched from an import-substitution model to an export-led one in the early seventies, when it launched tax reforms, liberalized foreign trade and the financial sector, and opened the economy to foreign investment. The three administrations that ruled in the nineties implemented tight monetary and fiscal policies which slashed the size and scope of the public sector, reduced inflation, and reformed the pension system in a way that would lower the structural government deficit in the long run.

The government owns, outright or partially, companies in insurance, water supply, electricity, telephone service, petroleum refining, airlines, postal service, railways, and banking. These activities generate about 18 percent of GDP and employ about 17 percent of the labor force. Privatization is widely opposed by large segments of the population. In December 1992, 72 percent of voters overturned the privatization of the state-owned telephone company, ANTEL. Notwithstanding, the government privatized various port services in 1992 and the natural gas company in 1994. In 1993 it allowed for competition in insurance coverage (except for worker compensation insurance). However, government regulation of this sector remains uneven and the government-owned provider still holds a large market share. The Batlle Administration announced its intent to demonopolize worker compensation insurance in the short-term. Water and sewage services are almost entirely provided by the state-run company (OSE).

The Batlle Administration intends to foster economic efficiency through demonopolization and the removal of bureaucratic red tape. A budget law approved in February 2001 provides for the demonopolization of telecommunications except for basic telephony, which remains a state monopoly. The law also created the legal framework for the establishment of regulatory agencies for telecommunications and electricity, and levels the tax treatment of public and private firms. In 2001, the GOU transferred operation of the country’s sole container terminal to the private sector on a 30-year build, operate and transfer system (BOT) basis. In September 2002, the government announced that it would permit the private sector to build and operate 770 miles of road.

4. Debt Management Policies

Uruguay has a long-standing tradition of prompt service of its external debt obligations. The only exceptions to this practice occurred in the 1930s, when the worldwide economic contraction led to the delay of some payments, and in mid-1965, when the government-owned Banco de la Republica went into arrears for a few months.

Net external debt decreased steadily as a percentage of GDP from 1988-1998. However, the need to finance higher budget deficits and the decline in GDP have driven it upwards since 1999. As of June 2002, gross and net external debt had amounted to 84 and 68 percent of GDP, respectively. External debt is mostly public and dollar-denominated. While all private sector debt is short-term (less than one year), public sector debt generally has a longer maturity (i.e. 57 percent of the total public debt matures after the year 2007). Public debt is growing at an unsustainable pace (22 percent from 1999 through June 2002), and some analysts believe that, unless Uruguay cuts its public expenditures drastically, the government may have to reschedule its debt repayment.

In March 2002, the GOU signed a new stand-by agreement with the IMF for US $800 million. The agreement, which is valid until March 2004, was revised in June and August and assistance was raised by US $2.0 billion. The IMF hopes that the augmented assistance will help restore confidence, ensure debt sustainability, and lay the foundation for a resumption of growth and employment. Also in 2002 the Inter-American Development Bank and the World Bank disbursed US$1.1 billion. The U.S. Government provided the Uruguayan Central Bank with US $1.5 billion in bridge financing while the international financial institutions’ assistance packages were being set up.

5. Significant Barriers to U.S. Exports

Certain imports require special licenses or customs documents. Among these are pharmaceuticals, some types of medical equipment and chemicals, firearms, radioactive materials, fertilizers, vegetable products, frozen embryos, livestock, bull semen, anabolics, sugar, seeds, hormones, meat and vehicles. To protect Uruguay’s important livestock industry, imports of bull semen and embryos also face certain numerical limitations and must comply with animal health requirements, a process that can take a long time. Bureaucratic delays also add to the cost of imports, although importers report that a “de-bureaucratization” commission has improved matters.

Few significant restrictions exist in services. The three U.S. banks that operate in Uruguay continue to be very active. Restrictions on professional services such as law, medicine or accounting are similar to most countries. Persons with non-Uruguayan credentials who wish to practice their profession in Uruguay must prove equivalent credentials to those required of locals. Travel and ticketing services are unrestricted.

There have been significant limitations on foreign equity participation in certain sectors of the economy. Investment areas regarded as strategic require government authorization. These include electricity, hydrocarbons, banking and finance, railroads, strategic minerals, basic telephony and the press. Uruguay has long owned and operated state monopolies in petroleum, railways, telephone service and port administration. However, since 1991 the GOU has demonopolized/privatized a number of activities (please refer to Section 3).

Government procurement practices are well defined, transparent, and closely followed. Bid awards, however, often are drawn out and caught up in controversy. Tenders are generally open to all bidders, foreign and domestic. A government decree, however, establishes that local products or services of equal quality to, and no more than ten percent more expensive than foreign goods or services, shall be given preference in government tenders. Among foreign bidders, preference will also be given to those who offer to purchase Uruguayan products. Uruguay has not signed the GATT/WTO government procurement code.

Reference prices and a few remaining minimum export prices were eliminated in 1994 and 2002, respectively. In 2002, Uruguay imposed countervailing duties on some goods to discourage imports from neighboring Argentina, whose products had fallen dramatically in price following that country’s December 2001 economic/political crisis.

6. Export Subsidies Policies

Uruguay adopted the WTO agreement on Subsidies and Countervailing Measures by law but has not yet implemented the agreement. The government provides a nine percent subsidy to wool fabric and apparel producers using funds from taxes on certain wool exports.

Enterprises that export vehicles (or motor parts) wholly or partly constructed in Uruguay may benefit from a customs concession, applicable to the importation of motor vehicles assembled abroad.

7. Protection of U.S. Intellectual Property

Uruguay is a member of the World Intellectual Property Organization (WIPO) and a party to the Bern and Universal Copyright Conventions. It is also a member of the Paris Convention for the Protection of Industrial Property. Uruguay adhered to the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) in 1997 but has not yet ratified them. Uruguay is presently at fault before the World Trade Organization because of its failure to upgrade its IPR regime before the January 1, 2000, deadline provided to developing countries.

Currently, the most serious lack of IPR protection comes from Uruguay’s failure to pass a new, TRIPs-compatible copyright law. Uruguay’s copyright law dates to 1937, and every administration in the past 15 years has sought to get a new copyright law approved. As a consequence, Uruguay was downgraded to USTR’s Special 301 Priority Watch List in 2001 and remains in that position as of October 2002. The government presented a new bill to Parliament in June 2002 and is striving harder than ever to pass a new law since the lack of adequate copyright legislation is the largest stumbling block in the U.S.-Uruguayan trade and investment-related talks in which it has high expectations. The latest bill meets most of U.S. industry’s concerns.

Uruguay affords copyright protection to artistic works, including movies, books, records, videos, and software. Enforcement of copyright-related legislation seems acceptable, albeit slow. Although the 1937 law does not provide specific protection for software, jurisprudence has consistently protected software and compilations of data. The copyright industry has launched an aggressive anti-piracy campaign and is working diligently to educate judges who have already imprisoned a number of people. 2001 IIPA data estimate that about 66 percent of business application and entertainment software (with an approximate value of $6.4 million) is pirated. IIPA also calculated trade losses of over US$8.0 million in 2001 from the piracy of videotapes, records, music, and books. IIPA statistics show that piracy levels for videotapes and music are 65 and 50 percent, respectively.

Patents are protected by law no. 17164, which was passed in 1999. Invention patents have a twenty-year term of protection from the date of filing. Patents of utility models and industrial designs have a ten-year term of protection from the date of filing and may be extended once for five more years. The law provides for a lax definition of compulsory licensing and a vague determination of the "adequate remuneration" to be paid to the patent holder. Some U.S. industry groups are unhappy with the law and believe that its compulsory licensing requirements are not TRIPs-consistent.

The government approved a law in 1998 that upgrades trademark legislation to TRIPs standards. Under this law, the registration of a trademark lasts ten years and can be renewed as many times as desired. It also provides prison penalties of six months to three years to lawbreakers. Registering a foreign trademark without proof of a legal commercial connection with the trademark is no longer possible. Enforcement of trademark rights is appropriate, and has improved during the current administration as a result of an intensive anti-smuggling campaign.

8. Worker Rights

a. The Right of Association: The constitution guarantees the right of workers to organize freely and encourages the formation of unions. Labor unions are independent of government control.

b. The Right to Organize and Bargain Collectively: Collective bargaining takes place on a plant-wide or sector-wide basis, with or without government mediation, as the parties wish.

c. Prohibition of Forced or Compulsory Labor: Forced or compulsory labor is prohibited by law and in practice.

d. Minimum age for employment of children: Children as young as 12 may be employed if they have a special work permit. Children under the age of 15 may not perform industrial jobs. Children under the age of 18 may not perform dangerous, fatiguing, or night work apart from domestic employment.

e. Acceptable Conditions of Work: There is a legislated minimum monthly wage (US$40 as of October 2002). The minimum wage functions, however, more as an index for calculating wage rates than as a true measure of minimum subsistence levels, and it would not provide a decent standard of living for a worker and his family. This wage is not binding for the vast majority of economic sectors that pay significantly higher salaries. The industrial and commercial standard workweeks are 48 and 44 hours, respectively, with overtime compensation. Workers are protected by health and safety standards which appear to be adhered to in practice. There are tax incentives for companies that hire young people.

f. Rights in Sectors with U.S. Investment: Workers in sectors in which there is U.S. investment are provided the same protection as other workers. In many cases, the wages and working conditions for those in U.S.-affiliated industries appear to be better than average.

Extent of U.S. Investment in Selected Industries -U.S. Direct Investment Position Abroad on an Historical Cost Basis- 1999

Category	Amount(Millions of U.S. dollars)
Petroleum	(1)
Total Manufacturing	154
Food & Kindred Products	32
Chemicals & Allied Products	37
Primary & Fabricated Metals	0
Industrial Machinery and Equipment	1
Electric & Electronic Equipment	0
Transportation Equipment	3
Other Manufacturing	82
Wholesale Trade	67
Banking	231
Finance/Insurance/Real Estate	120
Services	(1)
Other Industries	16
TOTAL ALL INDUSTRIES	614
(1) Suppressed to avoid disclosing data of individual companies. Source: U.S. Department of Commerce, Bureau of Economic Analysis.

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