Uruguay, the small South American country that is one of the most developed on the American continent. With its 3.4 million inhabitants, enjoying the highest per capita income in Latin America, at around 16,000 dollars. However, when we talk about Uruguay nowadays, many would not imagine that until the beginning of the 21st century the country suffered from the same political and economic problems that haunt other countries in the continent, as today Uruguay is an oasis of stability in the midst of the chaos experienced in South America, occupying the first place in the democracy index in Latin America. Besides being strategically located between two of the biggest economies in the region, being Brazil and Argentina which help to drive its economic growth, with Uruguay being in the top 5 fastest growing countries in Latin America at the moment. For these and other reasons Uruguay has become one of the best places in Latin America to live.
Why More and More People are Choosing to Move to Uruguay
Uruguay is Member of Key World Organizations
In addition, Uruguay is a member of important trade and financial organizations, such as the World Trade Organization, the World Bank, and especially Mercosur, with the country being one of the founding members of the bloc. And in this article we will understand how Uruguay has achieved the greatest political and economic stability in Latin America, as well as the country’s efforts to become the richest nation on the continent.
The History of Uruguay until it became the country it is today
To understand Uruguay’s success in the face of so many crises faced by nations on the South American continent, it is necessary to go back to 1828, when the Treaty of Montevideo made official the end of the Cisplatine War and Uruguay managed to gain independence from the Brazilian Empire. In the following years the country was constantly affected by political and housing crises and intense economic slowdowns that hampered its growth.
Civil War: Blanco versus Colorado
The Uruguayan civil war, which took place between 1839 and 1851, when the two main parties in the country, Blanco and Colorado, disputed who would govern Uruguay, ended up triggering an inevitable civil war, which involved the main powers of the time, such as Argentina’s support for the Blancos and Brazil’s support for the Colorados. However, the conflict ended with the Colorado party coming to power in 1865, even though political disputes between the two parties continued thereafter for more than four decades.
How did the Crisis of 1929 affect Uruguay?
At the beginning of the 20th century, Uruguay’s economy was mostly concentrated on the export of primary products, such as meat and wool, and precisely because of this the nation was strongly affected by the crisis of 1929, when the world’s largest economies entered a severe economic crisis, and this factor caused a 40% drop in Uruguay’s export revenues between the years 1930 and 1932. Thus, to overcome this economic crisis and to decrease the country’s increasing dependence on the foreign market, the Uruguayan government began to adopt import substitution policies, that is, to impose tariffs to decrease imports and, consequently, to stimulate local industry, a measure taken by several countries in the region that aimed to industrialize late. In a first moment the measures adopted helped to decrease unemployment and to develop the country’s industries, with the manufactured goods sector growing 8.5% a year between 1945 and 1954, and with a middle class representing about 40% of the population at that time.
However, due to its limited domestic market and the fact that 89% of the manufactured goods produced by its industry were consumed domestically, Uruguay’s industrial growth was halted and consequently its economic growth, which, added to the instability of its social characteristics, led the nation to go through a military regime between 1973 and 1985 along the lines of countries like Argentina, Chile, and Brazil, marked by strong repression, with Uruguay having the highest number of political prisoners per capita in the world.
U.S. Support in Financing
With the support of the United States, Uruguay began borrowing money from international lenders, as well as seeking to open its economy to the world. However, this opening caused several Uruguayan companies to go bankrupt as they could not compete, and the country became increasingly indebted, forcing the government to resort to spending cuts and privatizations. But it did not prevent GDP contracting by 20% in just two years, and unemployment reaching 17% per year in the early 1980s.
The Turning Point of Uruguay’s Economy
In this context, the turning point for Uruguay’s economy occurred at the beginning of the 21st century, after the country’s economy faced a series of external shocks amid a steady reduction in foreign financing, most notably with the historic 2002 crisis in Argentina and the end of the country’s convertibility. This led to a considerable loss of Uruguay’s international reserves, which resulted in an increase in the country’s public debt, as the economy contracted by more than 13% between 1999 and 2002. The unemployment rate reached 16% between 2002 and 2003. Furthermore, the shock was such that it led to an unprecedented run on Uruguayan banks, which in a short time completely paralyzed the nation’s banking system, and raised uncertainties against the safety of the banks, causing all of Uruguay’s bank deposits to be halved. As a result, starting in 2003 the government took fiscal austerity measures, such as
- Set inflation targets
- Stabilized the exchange rate
- Restructure the public debt
With these policies and the economic warming of neighboring Brazil and Argentina, Uruguay’s economy has benefited greatly. It has managed to reduce its public debt and the vulnerabilities of its financial sector by 50%, pulling the nation out of economic crisis and achieving an excellent average growth of 5.4% per year between 2004 and 2014. Thus, despite its seemingly troubled past, Uruguay has managed to overcome this situation and become an example of economic political stability, with the country becoming a reliable destination for foreign investment. As investments in the country in the year 2021 increasing by 151%. With this comes the question:
How Uruguay Is Becoming the Richest Country in Latin America?
First of all, one of the reasons that make Uruguay so attractive for business is the fact that the country is well positioned geographically in South America, with the nation being the main entry route for goods to the continent, given the country’s proximity to the River Plate, formed due to the junction of the Uruguay River and the Paraná River on the border between Argentina and Uruguay, which provide easy access to the Rio de la Plata basin, which is the largest hydrographic basin in South America, with more than 4 million square kilometers, offering Uruguay easy access to the continent’s main waterways. This allows the country to have quick access to a market of over 300 million people, and the nation has an extensive port infrastructure, with eight ports along its coast.
Fiscal and Customs Benefits for Companies
According to a world forum, Uruguay is the second country of the South American continent in port infrastructure, with emphasis on the port of Montevideo, which is the largest port in the country, where about 5,000 ships pass through each year, transporting up to 600,000 containers. Under these conditions, with the constant flow of goods passing through Uruguayan ports every year, it is common for the government to seek to expand the production areas near the coast, with emphasis on free trade hours, with up to 11 free trade and production areas throughout the territory that operate under a free trade zone regime, offering numerous tax and customs benefits, such as total freedom in the entry and exit of goods with exemption from taxes and duties. The free trade zones have been essential in making Uruguay the industrial center of Latin America, with estimates pointing out that the free trade areas have betrayed more than 5.7 Billion Dollars in foreign investments in the last 10 years, which added to the tax incentives have turned Uruguay into a commercial paradise for companies looking to establish their operations in Latin America. Giants such as Itaú and Roche are examples of companies that have ended up choosing Uruguay as one of their preferred locations for operations and the export of goods services.
Foreigners Looking to Uruguay to Live
Another relevant point is the fact that Uruguay has become over time a style of thousands of immigrants, with the number of people arriving in the country increasing considerably in recent years. Currently, to get an idea, the amount of residents in the country who were born abroad represents more than 3% of the national population, with the number of foreigners living in the country exceeding 80,000 inhabitants.
Why has Uruguay become a good country to live in?
The reasons why people choose Uruguay as their next destination is because recently the country has shown itself to be stable in the face of the constant economic and political turbulence of its South American neighbors. Besides the fact that Uruguay is a member of Mercosul, which is an economic and political bloc whose main objective is to promote economic development and establish closer commercial ties between the South American countries, since trade between the bloc’s countries has increased tenfold since the 1990s.
Financial Transparency and Ease of Doing Business
In addition, Uruguay benefits from having a high degree of transparency and ease of doing business due to its high level of economic freedom. A nation occupying the second place in the Index of Economic Freedom among South American Nations, behind only Chile, making it one of the main destinations for investors and businesses in the South American continent. As the movement of people between Mercosur member countries is facilitated by visa exemption, this fact is crucial for making the bloc’s member countries increasingly integrated and promoting constant waves of immigration between members. Thus, the economic crisis in the main economies of South America, Argentina and Brazil, has caused Argentineans and Brazilians to seek a new home on the continent.
Most notably Uruguay, the country achieving rapid growth after the 2020 pandemic, with the nation’s economy growing by 4.4% and exceeding expectations of a 3% growth in the year 2021. This factor has drawn the attention of immigrant and tourist numbers, particularly Brazilians, with the population of Brazilians living in Uruguay representing over 16% of the population of foreigners currently living in the country. It is also worth considering the growing immigration of European citizens to Uruguay as an alternative to escape the problems of Europe.
Thus, Uruguay went from a small colony in the 19th century to become the most important logistics hub in South America, giving the nation privileged access to a market of more than 300 million people, which, added to the country’s ability to remain relevant worldwide, makes Uruguay one of the main destinations for investments, goods, and business among Latin American countries.
If the nation continues to maintain this status, coupled with new policies to encourage economic freedom, Uruguay has everything it takes to become the ‘Oasis’ in the midst of the crises affecting Latin America.
