SOUTH AMERICA’S NEW- ZEALAND?
Will tiny URUGUAY get
squeezed between its two much larger neighbors, BRAZIL and ARGENTINA, or prove
itself resilient?
By Tim Harcourt
URUGUAY is the classic
small player who “punches above its weight.” It only has 3.3 million people and
is dwarfed by its larger neighbors BRAZIL and ARGENTINA, with 197 million and
41 million people, respectively.
But historically, it
was a wealthy country.
According to URUGUAY’S
Deputy Economy Minister, Luis Porto, back in 1870, URUGUAY — like ARGENTINA and
AUSTRALIA — was one of the world’s richest economies.
This was largely thanks
to its rich agricultural endowment.
For a small nation, it
was not only rich, but also competitive, as became apparent on the world
sporting stage. It won the inaugural FIFA Football World Cup in 1930.
Then URUGUAY backed it
up in 1950 in a shock 2:1 win over that year’s hotter-than-hot favorite host
nation, BRAZIL, at the newly built Maracana Stadium in Rio de Janeiro.
That game was played in
front of 200,000 people (mainly consisting of shocked BRAZILIANS who have been
haunted by the result ever since).
SWITZERLAND
OF THE SOUTHERN HEMISPHERE
 |
| Punta del Este |
When URUGUAY was
wealthy, it was known as the “SWITZERLAND of the southern hemisphere” In the
modern context, the best comparison is probably with NEW ZEALAND.
NEW ZEALAND and URUGUAY
have a lot in common. Both are small countries dependent on agriculture,
services and tourism and are also economically tied to the fortunes of their
considerably larger neighbors.
While NEW ZEALAND has
benefited from having “The Lucky Country,” AUSTRALIA, as its main next-door
neighbor, URUGUAY has had ARGENTINA.
ARGENTINES woes are
well documented — and URUGUAY is strongly influenced by the boom-bust
cycle of the ARGENTINE economy in terms of trade flows.
Background
Information: ARGENTINA
ARGENTINA,
BARELY 30 YEARS OF DEMOCRACY, A YOUNG NATION TRYING TO FIND ITS BEARING http://geopoliticsrst.blogspot.co.at/2012/11/argentine-evolution.html)
ARGENTINE
AGRICULTURE EXPORT http://geopoliticsrst.blogspot.com.ar/2011/07/share-of-cake.html and
ARGENTINE’S
"INVISIBLE OPPOSITION", CONSISTING OF SELF - SEEKING ONE MAN SHOWS,
MANIPULATED BY LOCAL MEDIA GIANT TO OPPOSE THE GOVERNMENT http://geopoliticsrst.blogspot.com.ar/2012/04/argentina-country-without-visible.html
MAIN STREAM
MEDIA INFLUENCE IN ARGENTINA http://geopoliticsrst.blogspot.co.at/2011/10/impartiality.html
THE CENTRAL BANK
OF ARGENTINA BREAKS RANKS WITH NEO-LIBERAL BANKING POLICY AND TARGETS JOBS OVER
LOWER INFLATIONhttp://geopoliticsrst.blogspot.co.at/2012/06/argentinean-central-bank-targets-growth.html
But URUGUAY also has BRAZIL
next door, and the previously often erratic fortunes of their neighbor have
been on the up over the past decade, especially when compared to poor
performances in the 1980s and 1990s.
URUGUAY, BRAZIL,
ARGENTINA, PARAGUAY and VENEZUELA make up the common market trade pact
Mercosur.
It would be expected
that URUGUAY, like CHILE, could benefit from being a small open economy opening
up to other nations including its economically larger neighbors.
But unlike CHILE,
URUGUAY can’t sign up to an FTA with another country without the permission of
its Mercosur partners.
In fact, URUGUAY finds
itself almost squeezed by the new divide in LATIN AMERICA.
LATAM
PROTECTIONISM AND POPULIST POLITICS EMERGED PARTLY IN RESPONSE TO THE EXCESSES
OF THE IMF’S POLICIES IN THE REGION (AND ELSEWHERE) DURING THE 1990's.
The nations that have
formed the Pacific alliance and look towards institutions like APEC — MEXICO,
CHILE, PERU and COLOMBIA — have largely supported free trade and open
economies, even when the global financial crisis of 2008 was at its worst.
On the other hand,
nations like ARGENTINA, VENEZUELA and BOLIVIA have supported protectionist and
populist policies, partly in response to the excesses of the IMF’s policies in
the region (and elsewhere) during the 1990s.
Background
Information: IMF
IMF AND
ARGENTINA
The key question
remains about the elephant in the room, BRAZIL, and which way it will lean.
Most MEXICAN economists
and business representatives claimed BRAZIL was already going down the
protectionist path, particularly when it comes to MEXICAN industrial products.
But the world is hoping
BRAZIL will keep an open economy stance as it gains more economic weight on the
global scale.
In any case, URUGUAY
may be keen to be seen as a “Pacific style” South AMERICAN nation in terms of
philosophy.
But with its geography
tied down on the Atlantic side of the continent, wedged between ARGENTINA and BRAZIL,
many URUGUAYAN businesses are concerned that, despite the existence of
Mercosur, most of their goods and services get tied up in red tape in both BRAZIL
and ARGENTINA.
In some ways, URUGUAY
is caught between its two large neighbors and finds it therefore difficult to
shine.
URUGUAY may no longer
be “the SWITZERLAND of the southern hemisphere” as it was in 1870.
But being the NEW
ZEALAND of SOUTH AMERICA in the 21st century may suit URUGUAY just fine.
And it would underscore
URUGUAY’S commitment to openness, excellence, human capital development and
occasionally being able to knock off larger players in football.
In short, count on URUGUAY
living up to its reputation as
“el país corajudo” — the plucky country.
Related Topics:
HEDGE FUND
ELLIOTT MANAGEMENT, HEADED BY THE BILLIONAIRE PAUL E. SINGER VERSUS ARGENTINA:http://geopoliticsrst.blogspot.co.at/2013/09/argentina-geopolitics-of-international.html
ELLIOT CAPITAL HEDGE FUNDS IS A CLIENT AND SHAREHOLDER OF
FITCH RATING AGENCY http://geopoliticsrst.blogspot.co.at/2013/02/argentinean-politics-under-claw-of.html
US COURT RULING
ON ARGENTINE BOND DEFAULT- THE PARIS CLUB, USA AGRICULTURE COMPANIES, AND
INTERNATIONAL FINANCIAL SPECULATORS “GRAB” FOR ARGENTINA
Hi Ray,
ReplyDeleteFirst at all, thanks for your sound postings. I learn a lot from many of them.
Uruguay was known as the South American Switzerland mainly because of their banking system, where laws allowing banking secrecy helped many Argentines and Brazilians to evade taxes at home and send hard currency to the banking havens, among which Uruguay.
As it is happening now in Europe with Germany vs UK, Brazil and Argentina are pressing Uruguay to get its banking system in shape to avoid tax evaders and money laundering, which harm both countries.
Uruguay is effectively at a hard stance: They would like to get back to the golden days of agricultural boom from the early XX century, but now the related technology doesn't allow to create a lot of employment on that sector. Add to that that the main services sectors (bank and tourism) will witness a hard position from Argentina and Brazil trying to depend their hard currency stocks and minimizing tax fraud, composed with internal wealth distribution that leaves less money to the upper classes to spend in Uruguay (wealthy Argentinians make up the most of Uruguayan tourism, which explains that apartments at Punta del Este always costed several million dollars) and then you have a less thatn ideal prospect to the future there. No wonder roughly half of Uruguayans live abroad, one million in Argentina alone.
Uruguayan politicians would gladly drop Mercosur, but they also know that the Colombian and Mexican realities is far from rosy since FTAs with USA don't yield benefits for everyone there (farmers protests are pervasive there). They already learnt from Argentina in the 90s that privatizing public companies could end in disaster (they rejected the move by referendum in 1992), something that a TLC will force to do, so they may continue inside Mercosur after all.
Cheers,
Andres