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Income, Production and Employment:
Real GDP (1983 prices) 2
Government Health Education
Money Supply (M2)
Interbank Floating Selling Rate
Exports to U.S.
Imports from U.S. ........
Trade Balance with U.S.
Figures are actual, average annual interest rates, not changes in them.
for each year.
1. General Policy Framework
Uruguay has a small, relatively open economy. The historical basis of the economy has been agriculture, particularly livestock production. Agriculture remains important both directly (wool and rice) and indirectly for inputs for other sectors (textiles, leather and meat). Industry, which diversified beyond agro-industry into chemicals and consumer goods for local consumption, has declined in the face of greater competition, and now accounts for 21 percent of GDP. Services, particularly tourism and financial services, now dominate the economy, accounting for over 60 percent of GDP. Banking benefits from Uruguay's open financial system.
The Government has been relatively successful in reducing its fiscal deficit from 7.4 percent in 1989 to 1.6 percent in 1993. Principal sources of the deficit are losses
by the Central Bank on nonperforming loans purchased from private banks, foreign debt payments and transfers to the social security system. Inflation peaked at 129 percent in 1990, and is expected to fall to 41 percent in 1994.
Seeking to reverse a long-term economic deterioration and to prepare itself for the formation of the Southern Common Market (MERCOSUR) comprising Brazil, Argentina, Uruguay and Paraguay, the Government is attempting to implement a program of economic reform. Major elements of the Government program are privatization of state enterprises, financial sector reform and reform of the costly social security system. The progress of reform, however, has been slow.
Uruguay is the beneficiary of large inflows of capital, principally from neighboring Brazil and Argentina. The Government has been able to finance a substantial portion of its deficit through the issuance of dollar-denominated treasury bills. The Central Bank of Uruguay uses the adjustment of reserve requirements as the main tool to control the money supply. However, the lack of instruments to neutralize capital inflows makes control of the money supply difficult.
On April 1994 the IMF approved the Uruguayan government economic program for 1994 which will be subject to the IMF staff monitoring procedure. Uruguay has ratified the Uruguay Round trade agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. 2. Exchange Rate Policy
The Uruguayan government allows the peso to float freely against the dollar within a declining 7 percent band. The band currently declines by 2 percent per month. Up to mid August 1994, the Central Bank regularly bought dollars to keep the peso value from rising above the band. For a period thereafter, the value of the dollar was floating close to the top of the band pushed by high liquidity and expectation of formal devaluation. By the end of October, the speculative burst ended and the Central Bank was again buying dollars. The lag between devaluation and inflation decreased from about 21 percentage points in 1993 to 16 percentage points for the twelve-month period ended October 1994 continuing to make Uruguayan exports less competitive and imports more attractive.
Uruguay has no foreign exchange controls. The peso is freely convertible into dollars for any transaction and much
of the economy is dollarized. 3. Structural Policies
Price controls are limited to a small set of products and services for public consumption, such as bread, milk, passenger transportation, utilities and fuels. The Government relies heavily on consumption taxes (value-added and excise) and taxes on foreign trade (export taxes and tariffs) for its general revenues. A substantial social security tax, sometimes equal to 50 percent of the base wage rate, is assessed on workers and employers. The top tariff rate was lowered from 24 percent to 20 percent in January i 1993. This has a positive effect on U.S. exports. Tariffs for products from Mercosur countries will reach zero on January 1, 1995. There are no plans for further reductions of tariffs on products from third countries at this time. 4. Debt Management Policies
Uruguay is a heavily-indebted middle-income country. As of March 1994, its total external debt was $7.8 billion, almost $300 million over the amount in March 1993. Of this amount, $4.4 billion was public sector debt and $3.4 billion represented debts of the private sector. The public sector external debt included 1.6 billion of dollar-denominated Uruguayan government bills and bonds, $269 million of foreign currency deposits of nonresidents, $2 billion of long term loans of the nonfinancial public sector and $158 million of suppliers credits. The balance, amounting to $373 million, represents liabilities reserves and other credits of the Government of Uru. guay financial sector. International reserves of the public sector banking system amounted to $2.5 billion, resulting in a net public sector foreign debt of $1.9 billion.
The $3.4 billion of the private sector foreign debt were primarily made up of $2 billion of foreign currency deposits by nonresidents and $359 million of supplier credits. The balance amounting to $1 billion represented liability reserves of the private banks. International reserves of the private sector banks amounted to $3 bil. lion resulting in a net private sector foreign debt of $452 million.
The debt service in 1992 was $750 million, equivalent to 45.6 percent of total mer. chandise exports, 26.7 percent of combined merchandise and service exports and 5.7 percent of GDP. 5. Significant Barriers to U.S. Exports
Certain imports require special licenses or customs documents. Among these are drugs, certain medical equipment and chemicals, firearms, radioactive matcrials, fertilizers, vegetable materials, 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 which can take years. Bureaucratic delays also add to the cost of imports, although importers report that a "debureaucratization" commission has improved matters.
Few significant restrictions exist in services. U.S. banks continue to be very active in off-shore banking. There are no significant restrictions on professional services such as law, medicine or accounting. Similarly, travel and ticketing services are unrestricted. A law allowing foreign companies to offer insurance coverage in Uruguay was passed in October, 1993.
There have been significant limitations on foreign equity participation in certain sectors of the economy. Investment in areas regarded as strategic require Government authorization. These include electricity, hydrocarbons, banking and finance, railroads, strategic minerals, telecommunications, and the press. Uruguay has long owned and operated state monopolies in petroleum, rail freight, telephone service, and port administration. Passage of port reform legislation in April 1992 allowed for privatization of various port services. Recently approved legislation also allows for the private generation of electric power and the privatization of the state-owned gas company. Cellular telecommunications are operated by both private consortiums and the state-owned phone company. Privatization of the telephone company was rejected in a referendum in 1992.
Government procurement practices are well-defined, transparent and closely followed. Tenders are generally open to all bidders, foreign or domestic. In the past year, however, several important government bids appeared to have been awarded to non U.S. companies based on other than objective criteria such as price and quality. A Government decree also establishes that in conditions of equal quality or adequacy to the function, domestic products will have preference over foreign ones. Among foreign bidders, preference will be given to those who offer to purchase Uru. guayan products. The Government favors local bidders even if their price is up to 10 percent higher. Uruguay is not a signatory to the GATT government procurement code,
Following a recent reduction in the top rate, Uruguay's tariff structure now varies between 0 and 20 percent. Imports from MERCOSUR member countries (Brazil, Argentina, and Paraguay) enjoy significantly lower rates and will become O percent on most products as of January 1, 1995. The only exemptions to tariff regulations, in the context of anti-dumping legislation, are reference prices and minimum export prices, fixed in relation to international levels and in line with commitments assumed under GATT. These are applied to neutralize unfair trade practices which threaten to damage national production activity or delay the development of such activities and are primarily directed at Argentina and Brazil. Minimum export prices are scheduled to be phased out in 1995. 6. Export Subsidies Policies
The Government has provided a 9 percent subsidy to wool fabric and apparel using funds from a tax on greasy and washed wool exports. This subsidy will be totally eliminated by May 1, 1995. Uruguay is a signatory of the GATT subsidies code. 7. Protection of U.S. Intellectual Property
The Government of Uruguay recognizes intellectual property rights in a number of areas, and there is no discrimination against foreign companies seeking to register intellectual property rights. Uruguay has generally sufficient laws to protect most intellectual property rights except with regard to new technology and pharmaceuticals. However, enforcement of these laws is weak in certain areas such as software, due in part to the fact that little of the domestic industry relies on intellectual property protection. Uruguay has been generally supportive of efforts to strengthen the rules governing intellectual property protection in international fora such as the World Intellectual Property Organization (WIPO) and the Uruguay Round of GATT.
The Government does not discriminate between foreign and domestic patent holders. Owners and assignees of foreign patents may obtain confirmation of patents in Uruguay, provided application is made within 3 years of registration in country of origin. Confirmed patents are protected for 10 years, less the period of protection already enjoyed in the country of origin. Compulsory licensing is not practiced. Medicines and chemical products are not patentable, although production processes for such products are patentable. Although no figures are available, the lack of patent protection for pharmaceuticals has had a marked effect on U.S. trade and investment in the sector.
Foreign trademarks may be registered in Uruguay and receive the same protection as domestic trademarks. Protection is afforded for 10 years initially, renewable indefinitely.
Uruguay affords copyright protection to, inter alia, books, records, videos, and software. Despite the legal protection, enforcement of copyright protection for software is still weak and pirating of software is substantial. Software suppliers have estimated that losses due to pirating could amount to $10 million. There is also considerable pirating of videotapes and cassettes. The International Intellectual Property Rights Alliance estimates trade losses from copyright piracy of motion pictures, sound recordings and musical compositions, and books at $9.9 million. 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 or political party control.
b. The Right to Organize and Bargain Collectively. Under a policy instituted in March 1992, 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 and there is no evidence of its existence.
d. Minimum Age for Employment of Children. Children as young as 12 may be employed if they have a work permit. 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 wage. The standard work week is 48 hours for six days, with overtime compensation for work in excess of 48 hours. Workers are protected by health and safety standards, which appear to be adhered to in practice.
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—1993
(Millions of U.S. dollars)
Food & Kindred Products
1 Suppressed to avoid disclosing data of individual companies.
Key Economic Indicators
Income, Production and Employment:
72,999 72,297 68,393 Real GDP Growth (pct.)
6.8 - 1.0 -5.4 GDP (at current prices) 2
60,414 58,973 57,158 By Sector: Agriculture
3,223 3,146 2,857 Energy/Water
11,969 11,684 11,800 Manufacturing
8,786 8,576 7,916 Construction
3,939 3,845 3,480 Rents
3,807 3,716 3,456 Financial Services
1,540 1,503 1,398 Other Services
23,203 22,650 22,668 Government Health Education
3,947 3,853 3,583 Net Exports of Goods & Services
273 1,522 Real Per Capita GDP (1985 base)
3,587 3,473 3,212 Labor Force (000s)
7,538 7,546 7,622 Unemployment Rate (pct.)
12.0 Money and Prices (annual percentage growth): Money Supply (M2)
62.7 Base Interest Rate 3
56.5 Personal Saving Rate 3
6.1 Retail Inflation
75.0 Wholesale Inflation
47.3 109.0 Consumer Price Index (1984=100)
1,071.6 1,563.5 2,736.1 Exchange Rate (USD/Bs)* Official
68.40 91.15 153.4 Parallel
68.40 91.15 161.9 Balance of Payments and Trade: Total Exports (FOB) 5
13,955 14,222 15,100 Exports to U.S. (CV)
7,564 7,782 8,000 Total Imports (FOB) 5
12,266 11,013 7,400 Imports from U.S. (FAS)
5,178 4,395 3,800 Aid from U.S.
0 Aid from Other Countries
NA External Public Debt .....
27,083 27,297 26,700 Debt Service Payments (paid)
2,695 2,989 3,200 Gold and Foreign Exch, Reserves
13,001 12,656 11,000 Trade Balance 5
1,689 3,209 7,700 Trade Balance with U.S.
2,386 3,387 4,200 NIA-Not available.
U.S. Embassy estimates based on information available in October 1994.
Figures are actual, average annual interest rates, not rates of change. * Annual averages. Venezuela adopted a fixed single exchange rate of 170 bolivars to the dollar on July 11, 1994. A parallel exchange market is currently illegal.
s Merchandise trade. 1. General Policy Framework
Venezuela's long-term potential as a market for U.S. business remains positive, although 1995 will be difficult. The country has a moderately well-established economic infrastructure and an impressive potential for economic growth in petroleum, natural gas, hydroelectric power, iron ore, coal, bauxite, and gold. Venezuela is a major oil producer/exporter and a founding member of OPEC. The petroleum sector dominates the economy, but the government is encouraging the development of nontraditional basic export industries, such as petrochemicals, aluminum, steel, cement, forestry, manufactured consumer products, and mining.