Webcast Recap

On November 29, 2009, Uruguayan voters went to the polls in the second round of presidential elections, elevating José Mujica of the ruling Frente Amplio coalition to the presidency. Mujica, a former Tupamaro guerrilla, defeated former president Luis Alberto Lacalle of the Partido Nacional. To interpret the election results and what they portend for the future of Uruguay, the Latin American Program joined with the National Endowment for Democracy's International Forum for Democracy on December 4, 2009, to host two distinguished scholars of contemporary Uruguay's politics and economics.

Jorge Lanzaro of the Universidad de la República, Montevideo, and a Woodrow Wilson Center Public Policy Scholar, pointed out that Mujica, who won the run-off with 52.4 percent of the votes against Lacalle's 43.5 percent, had won more votes in the second round than incumbent Frente Amplio President Tabaré Vásquez, who enjoys 70 percent approval ratings. The Frente Amplio also won an absolute majority in both houses of congress.

Comparing and Contrasting Successive Frente Amplio Governments
Lanzaro described Uruguay as a "leading case of Latin American social democracy," in which institutionalized left parties with a "socialist lineage" and links to labor unions are embedded in a competitive, plural party system. According to Lanzaro, this marks a clear difference with current left experiences in non-competitive democracies. Although the Frente Amplio is the largest party coalition, Lanzaro indicated that the Uruguayan electorate is divided into two similar blocs, each with about 40 percent of voters.

Although the first Frente Amplio government (2005-2010) was characterized by a social democratic majority and strong presidential leadership, Lanzaro foresaw a more competitive political environment during Mujica's term. Mujica is not the sole leader of the Frente Amplio, Lanzaro argued, and has to compete with outgoing President Vásquez (a possible candidate again in 2014) and with Vice President Danilo Astori, a former minister of the economy who was a contender in the recent primaries. While Mujica and his allies have a clear majority in the House, party factions in the Senate are more balanced and overall, the Frente Amplio has a smaller parliamentary majority than in 2004.

Under Uruguay's tradition of coparticipación, opposition parties participate as minority members in government agency councils, including in the Central Bank, public enterprises, and social services. The government and opposition parties forge programmatic agreements inside these important centers of political decision-making, a form of bargaining that complements that which takes place in the parliament.

Arturo Porzecanski, distinguished economist-in-residence at American University, reviewed the economic backdrop to the Frente Amplio's victory, the economic legacy of the Vásquez government, and the likely priorities and challenges for economic policy and reform.

Porzecanski noted that Latin American countries far away from the U.S. border felt little impact from the 2007-09 recession. The economic crisis was thus not foremost in voters' minds when they went to the polls; rather, like Brazil, the Uruguayan economy was on the upswing. From 2005-2008, per capita GDP rose from $6,000 per year to $9,000 per year; growth averaged 7 percent per year, and unemployment steadily decreased, from about 13 percent before 2005 to 6.4 percent in 2009, the lowest since record-keeping began.

Exports during the boom years more than doubled, from $3.5 billion per year to $7 billion per year; and while exports fell for 12 consecutive months starting in October 2008, they rose again in November 2009. Uruguay's exchange rate recovered from its depreciation in October 2008, and the rate of inflation dropped following the 2005-08 boom. "In sum, there was no need for a protest vote," Porzecanski argued. Rather, Mujica only had to promise continuity, to not "rock the boat."

Vázquez's Economic Legacy
According to Porzecanski, the economy is on the upswing. Growth is forecast for 4 percent in 2010, and GDP per capita will continue to increase, largely because of the appreciation of the peso. Inflation will come down, Porzecanski predicted, and unemployment will remain low.

However, Porzecanski noted, Uruguay's rate of inflation is too high, particularly in light of deflation in places such as the United States, Brazil, and Chile. Increases in the price of electricity and oil were not fully passed on to consumers due to government subsidies; without them, inflation would be much higher.

Moreover, the government failed to accumulate "rainy day" reserves during the boom years. Spending, rather than savings, went up as revenues increased and public sector deficits rose as a percent of GDP between 2007-09. Similarly, public and private sector wages went up an average of 15 percent (8 percent in real terms), an increase that did not reflect increases in productivity. Finally, Porzecanski argued, Uruguay is overly-dependent on Argentina in terms of trade, tourism, non-resident bank deposits, and investments in agriculture and real estate. Those relationships should be with Brazil, he argued, "the real anchor in the region."

Future Challenges and Priorities for Economic Policy and Reform
Porzecanski cited reform of Uruguay's welfare state as the country's biggest challenge. Uruguay has a European-style welfare state, but lacks European levels of revenue or productivity. While the state offers free education and healthcare, they are very difficult to pay for and quality has steadily deteriorated.

Challenges for the Mujica government include reform of a large and inefficient state, fiscal reform (in order to save revenues in times of plenty), energy, public safety, and improvements in the quality of education. Among the desirable reforms and challenges is granting greater independence to the central bank.