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Uruguay The Military's Economic Record
When the military took power in 1973, they did so in
the face
of a decade and a half of economic stagnation, high
inflation,
and increased social unrest. Massive repression brought
the
social unrest under control and eliminated the urban
guerrilla
threat. Economic policy and performance soon became the
regime's
ultimate claim to legitimacy and justification for its
harsh
rule. The military and their civilian technocrats hoped to
reverse Uruguay's economic stagnation, which had led to an
absence of capital accumulation and investment, as well as
to
capital flight. The dissolution of the General Assembly
and the
banning of union organizations eliminated any
possibilities for
action by the opposition and thus made possible a new
economic
model. The long-term model sought by the military involved
a
profound change in the traditional roles of the public and
private sectors and the response of the public sector to
the
influence of the external market.
The military's economic program sought to transform
Uruguay
into an international financial center by lifting
restrictions on
the exchange rate; ensuring the free convertibility of the
peso
and foreign remittances, thus further "dollarizing" the
economy;
facilitating the opening of branches of foreign banks; and
enacting a law to promote foreign investment. More
attention was
paid to the international market. The reduction of import
duties,
promotion of nontraditional exports, integration of trade
with
Argentina and Brazil, and liberalization of the
agricultural and
livestock markets were key goals. Although proposals were
made to
reduce state interventionism, the state participated
actively in
the preparation of the new program.
The principal architect of the program was
Harvard-trained
Alejandro Végh Villegas, who had served as minister of
economy
and finance from 1974 to 1976. Végh hoped to dismantle the
protectionist structure of the economy; free the banking
and
financial communities from the restraints under which they
operated; cut the budget, especially social spending;
reduce
state employment; and sell off most of the state
enterprises.
However, some of the nationalist and populist military
leaders
opposed his plan for mass reductions in government
employment and
divestiture of such state enterprises as ANCAP. Végh
succeeded
somewhat in his budgetary and monetary objectives and
managed to
reduce some tariffs. Between 1975 and 1980, his strict
monetary
policy reduced inflation from 100 percent in 1972 to 40 to
67
percent in 1980, and by 1982 it was only 20 percent. He
managed
this by strict control of the social service side of the
budget
and by a policy of depressed real wages, which fell by 50
percent
during the 1970s.
Between 1974 and 1980, the gross domestic product
(
GDP--see Glossary) grew, although unevenly. Beginning in 1980,
however,
the situation changed as the military's economic program
began to
unravel. High interest rates and recession in the United
States
did not help matters. Between 1981 and 1983, GDP fell some
20
percent, and unemployment rose to 17 percent. The foreign
debt
burden, exacerbated by the quadrupling of oil prices in
1974,
grew exponentially and stood at about US$3 billion by
1984.
Industry and agriculture, whose accumulation of debt in
dollars had been encouraged by official policies, were
adversely
affected by the government's elimination in November 1982
of its
"crawling peg" system (a minidevaluation monetary policy)
in
effect since 1978. The progressively overvalued currency
had
limited the ability of domestic producers to raise prices
to
compete with cheaper imports. The resulting collapse of
the
Uruguayan new peso (for value of the
Uruguayan new peso--see Glossary) bankrupted thousands
of individuals and
businesses.
Industry was in better shape, although it had unused
capacity and
no substantial diversification had taken place. The
financial
sector, which was largely foreign owned, was consolidated
and
expanded at the same time. As the situation deteriorated,
the
state, in order to save the banking system, purchased
noncollectible debt portfolios of ranchers,
industrialists, and
importers, which were held by private banks. This
adversely
affected the fiscal deficit and increased the foreign
debt, which
grew sevenfold between 1973 and 1984
(see Restructuring under the Military Regime, 1973-85
, ch. 3).
The failure of the regime's economic model, combined
with its
stifling of political opposition, prompted thousands of
Uruguay's
best professionals to go into exile. By late 1983, Végh
returned
from an ambassadorship in the United States to once again
become
minister of economy and finance. As the most important
technocrat
to serve the military regime, he had returned to help
smooth out
the expected transition to civilian rule. He failed,
however, to
turn over a revived economy to a democratic government.
The lack
of success of the military's economic policies and their
failure
to achieve legitimacy or consensus led to a watering down
of
their own plan to reinstitute a civilian government under
military tutelage.
Data as of December 1990
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