The Switzerland of South America: “Freedom or Death”

“Freedom or death” is Uruguay’s national motto. Those three words give us meaningful insight into Uruguay’s national psyche, its cultural affinity for the principles of civil liberty and self-determination, and its deep yearning for economic freedom. From its earliest days in the mid-19th Century, the modern state of Uruguay has been a nation with a mission to take its place among more advanced economies. Political turmoil and global economic crises have conspired to keep it down, but like a prize fighter who keeps bouncing back, today Uruguay is proving its mettle under challenging conditions. Indeed, Uruguay offers more freedom than death. This article briefly explores the history and conditions that have given birth to Uruguay’s unusual level of economic and political freedom today.

Historical Snapshot

Ancient History. The earliest signs of human civilization in Uruguay date back to about 10,000 years ago. Based on archeological evidence and ancient artwork, Uruguay’s culture appears to have originated from ancient Brazilian tribes and corresponding Catalanense and Cuareim cultures. The most well-documented inhabitants of Uruguay before European colonization were the Charrúa, which was a small tribal group driven southward from Paraguay into the region of modern-day Uruguay about 4,000 years ago.

Colonial History. Uruguay’s colonial history spans the years between 1516 to 1811. This was a period of relatively rapid demographic and political change and violence between Portugal, Spain, Paraguay, Brazil, Argentina, England, and the indigenous people already living in the regions of modern-day Uruguay. Portugal was the first European power to assert a colonial claim over Uruguay with the establishment of the Colonia del Sacramento in 1680. Then Uruguay’s capital city, Montevideo, was founded by Spain in 1726 as a military outpost. Spain was much more aggressive than the other foreign powers during this period, exploiting Uruguay’s strategic geographical position and natural harbor to develop Montevideo into an important hub for international commercial trade. This is why Uruguayans speak Spanish instead of Portuguese or English today.

19th Century Independence Period. The indigenous people of Uruguay fought a series of battles against Spain, Portugal, Argentina, Brazil and Britain between 1811-1830. Despite competing claims and annexations by these rival countries, the people of Uruguay finally achieved status as an independent nation in 1828 after years of struggle and subjugation by foreign powers. Unfortunately, despite their nominal independence, the people of Uruguay were still dominated by foreign powers throughout the 19th Century and well into the 20th Century. This resulted in significant political factionalism and several civil wars. For this reason, Uruguay’s government and people often turned to their military to maintain order, with varying results.

Political Upheaval in the 20th Century. Throughout the 20th Century, Uruguay’s government vacillated between different forms of governance. In 1917, a referendum was passed that reshaped the government’s executive power by diffusing it throughout an executive council in which power was shared among multiple executives, similar to the Federal Council in Switzerland today. However, in 1933 during the depths of the worldwide Great Depression, this collective executive decision-making body could not respond fast enough to satisfy the political, economic, and social pressures that dominated Uruguayan life. This led to a series of political referenda, Marxist political movements, military dictatorships, murderous political purges, and repressive government regimes until the mid-1980s.

Uruguay Today. After generational waves of immigrants landing on its shores, Uruguay’s population is comprised of European Whites (88%), Mestizos (8%), Blacks (4%), and a relatively small number of Amerindians. Most of the country’s population is still concentrated in the capital city of Montevideo, with 80% living in urban cities. The country continues to rapidly industrialize, enabling Uruguay to be increasingly competitive in South America and globally. Much of Uruguayan society is influenced by international developments. Despite a series of positive political and economic reforms and corresponding increases in political and economic stability, the Argentine sovereign debt crisis in the 1990s and the global financial crisis in 2008 had profound affects on the development of the Uruguayan economy and its society.

With such a chaotic history and fierce struggle against the most powerful forces of tyranny in the pre-20th Century world, we can understand why Uruguay’s motto is “Freedom or death”.

Political Institutions

Today, Uruguay is a democratic, constitutional republic (latest constitution ratified in 1967) with a president who serves simultaneously as the head of state and the head of government. Uruguay’s civil law system is based on the Spanish Civil Code. Similar to presidential systems like the United States, Uruguay’s Constitution separates the government into three branches with equal power: executive, legislative and judicial.

Institutional Integrity. In recent years, Uruguay has been frequently praised for its political system integrity, stable political culture, and it competes with Chile for the title of the least corrupt nation in South America. Uruguay’s “Transparency Law” imposes strict criminal penalties on politicians who abuse their government power, which significantly contributes to its strong institutional integrity. Its judiciary branch is reasonably independent and the rule of law is widely respected, resulting in the protection of private property and predictably enforceable contracts.

Structure of Government. Uruguay’s Supreme Court judges are nominated by the president and confirmed by the General Assembly, serving 10-year terms, which is an interesting contrast to the life terms enjoyed by U.S. Supreme Court justices. The executive branch president and vice-president are both elected directly by the citizenry on the same ballot by absolute majority for a 5-year term. The legislative branch is comprised of a bicameral General Assembly, which consists of a Chamber of Senators (31 seats nationwide) and a Chamber of Representatives (99 seats spread across multiple districts). Unlike the single-member district plurality (“winner-take-all”) system in the United States, the members of both chambers of the Uruguayan legislature are directly elected for 5-year terms according to the proportional representation method.

Political Party System. The political party system in Uruguay is vibrant and reflects the diverse interests of its citizens. As of 2016, there are over a dozen active parties proportionally represented in Uruguay’s legislature and several more parties that actively run candidates during each election cycle. Although its multi-party system is generally healthy, like all multi-party systems the Uruguay’s political system is generally dominated by a few large parties, which in this case are: The Broad Front, the Colorado Party, and the National Party. The issues that dominate the political discourse in Uruguay tend to revolve around the country’s economic development, fiscal policy, and monetary policy.

Media & The Press. Although there are some state-run media outlets, the overall media environment in Uruguay is characterized by a significant level of freedom and independence from government. More than 100 private radio stations, several dozen television channels, and cable television are available. The Internet is widely available and the government has no policy or recent history of censorship. The press is free and there are no formal restrictions on its ability to publish news that is unfavorable to government officials when necessary.

In 2013, the Economist financial news company awarded Uruguay with the title “country of the year” because of its liberal approach to several socioeconomic issues, including the legalization of cannabis, same-sex marriage, and abortion. Its rational economic policy and freedom-promoting social policies have enabled Uruguay to rank highly on several important global measures of civil liberty, economic prosperity, and quality of life.

Economy of Uruguay

Modern economic reforms and a business-friendly tax and regulatory environment make Uruguay an attractive destination for many global corporations and investors. Additionally, Uruguay has been blessed by not having any natural mineral or energy resources. This has enabled it to avoid the “natural resource curse” that has corrupted the governments of many other countries. Without the crutch of natural mineral and energy resources, Uruguay has been forced to develop its governmental institutions and its economy in ways that promote free and fair elections, relatively effective democratic institutions, and a robust and diversified economy.

Although several of its major industries (in particular, railroads, postal service, telecom, and utility companies) are nationalized to maintain the stability of its vital infrastructure, Uruguay has a substantially free-market economy based primarily on agricultural and service exports. It has a relatively well-educated labor force with a mature social welfare policy designed to promote widespread economic stability and physical well-being.

Composition of National Economy. Uruguay’s largest national trading partners and corresponding share of trading volume are Brazil (18%), China (17%), the United States (5%), Venezuela (4.4%), the Netherlands (4.1%), among others representing smaller trading volumes. Uruguay has a substantially diversified economy consisting of exports in the following categories: beef, dairy and other animal products (36%); vegetables and produce (21%); timber and paper products (11%); chemical products (9%); plastics and rubber (4.6%), with the remainder comprised of banking, software development and other industrial services.

At $73 billion in 2015, Uruguay’s GDP is above average relative to its geographical size and small population of 3.4 million people. In the context of today’s global economy, Uruguay’s unemployment rate is relatively low at 7.5% (2015) and its per-capita GDP is $21,247, which ranks the country 60th among all nations worldwide, placing it in the second quartile overall. Between 1990 and the early 2000s, annual GDP growth was robust at an average of 8%, which was consistent with many developing economies. During the global financial crisis years of 2008-2009, average GDP fell to a more modest 2.6%.

Economic Policies. Despite tough global economic conditions, unlike many other countries Uruguay’s economy never actually descended into negative growth rates. This was primarily achieved through substantial increases in government spending on public infrastructure projects. At a time when debt interest rates are at historical lows along with Uruguay’s relatively strong sovereign credit rating, this was a reasonable economic policy response.

However, in recent months, there has been some concern in the global investment community over Uruguay’s ability to fulfill its sovereign bond obligations as its economy continues to be dragged down by global economic conditions. This has resulted in persistent national budget deficits over the past several years, which has increased Uruguay’s public debt to over 60% of GDP. This has increased pressure on the government to increase spending on infrastructure and social welfare programs, which may not be sustainable over the long-run.

Conclusion

Uruguay is a young nation with a dynamic economy, a highly engaged political culture, and an institutionalized respect for the rule of law. Its colonial history is similar to many other former European colonies, but it escaped the natural resource curse that still plagues many post-colonial nations today. Although Uruguay’s sovereign credit rating has been relatively stable and positive since 2003, the government needs to manage its fiscal policy more conservatively (easier said than done), nurture its blossoming IT sector, continue investing in the productivity of its labor force, and promote its relatively low cost of labor to potential investment partners worldwide. Inspiring confidence in the global investment community to attract more foreign direct investment will enable it to expand its manufacturing and service capacity, increase its long-run GDP, and provide the highest quality of life for its citizens. If it can do this, Uruguay can fulfill its promise as the “Switzerland of South America”.


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About Ferris Eanfar

Ferris has over 20 years of experience in the field of International Political Economy, including leadership positions within technical, business, financial, media and government intelligence environments. If you want to learn more about Ferris, please visit the About Ferris page.