The next ChileFeb 1st 2007 | PUNTA DEL ESTE
If only it allowed itself to be
WHEN Luis Alberto Lacalle was the president of the small South American republic of Uruguay in the early 1990s he came back from a trip to Chile and proclaimed: “I've just returned from the future.” Like Chile, Uruguay is one of Latin America's most solid democracies, with relatively effective public institutions. But where Chile has forged ahead with privatisation, free markets and open trade, Uruguay has stuck cautiously to its more egalitarian but slow-moving social democracy.
Uruguay was knocked off course by Argentina's economic collapse, which led to a run on its banks and a deep recession in 2002-03. It has since bounced back strongly. Now it has taken a small step down the Chilean road. On January 25th the left-wing government of President Tabaré Vázquez signed a trade and investment “framework agreement” with the United States—a potential first step towards a free-trade deal.
Many of the elements for rapid economic growth are in place. Unlike Argentina, Uruguay did not default on its debt. The traditional pillars of its economy—farming, tourism and finance—are all doing well. Foreigners are buying ranches. The tourist industry, centred on the seaside resort of Punta del Este, has added rising numbers of Europeans and Americans to its traditional Argentine clientele.
Some Uruguayans also hope that their country can attract new service industries, such as call centres and back-office work. They point to its educated workforce, strong legal protections for investors and tax breaks for such ventures. India's Tata Consultancy Services chose Montevideo, Uruguay's capital, as its worldwide base for Spanish-language business-service and software operations.
Two things hold Uruguay back. The first is that it is part of Mercosur, the trade group based on Brazil and Argentina which now includes Hugo Chávez's socialist Venezuela. Mercosur's relatively high tariffs add to the cost of imported machinery. To sign a free-trade agreement with the United States, Uruguay would need the consent of its Mercosur partners.
Businessmen complain that they are not getting many compensating benefits from Mercosur. Argentina has behaved in an un-neighbourly fashion over a huge new paper plant being built by Finland's Metsa-Botnia on the Uruguayan side of their riverine border. Argentina's government has done little to restrain protesters who have blocked the main bridge between the two countries during the peak tourist season this year and last. They claim the plant will pollute the river; a recent study for the World Bank found minimal environmental impact.
The second brake is political. The finance minister, Danilo Astori, is a moderate in the mould of Chile's ruling centre-left coalition. But the ruling Broad Front also includes powerful trade unions and old-line socialists. In return for their support for responsible macroeconomic policies, Mr Vázquez has held back from starting free-trade talks with the United States. He has also backed tougher collective-bargaining rules, and promised not to intervene if workers occupy workplaces. Most Uruguayans seem happy to leave large swathes of the economy—including telecoms, much of electricity, oil imports and several banks—in state hands.
Uruguayans “want to have a dynamic capitalism like Chile, but with more emphasis on equality,” says Adolfo Garcé, a political scientist at the University of the Republic in Montevideo. But Uruguay may have to choose between dynamism and egalitarianism.
http://www.economist.com/world/la/displaystory.cfm?story_id=8636271prosperidade na américa latina me enche de felicidade, quando vejo a potencialidade de alguma.
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