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Uruguay ECONOMIC POLICY
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Figure 7. Employment by Sector, 1988
Government policy has greatly influenced the
development, or
lack of development, of Uruguay's economy during the
twentieth
century. The government first became an important
regulator of
economic activity when it arranged for a portion of
livestock
export earnings to be transferred to the urban working
class. As
its interventionist role expanded during the early 1900s,
the
central government became the administrator of an
elaborate
social welfare system that was generous by Latin American
standards. After the Great Depression, the government
enacted
tariff policies to promote domestic manufacturing and
adopted the
strategy known as import-substitution industrialization.
The
state also became an important participant in the economy.
In a
pattern repeated elsewhere in Latin America, the central
government nationalized or established several of the
largest
service and manufacturing companies in the country
(see Industry
, this ch.). It became the single largest employer and
producer in
the nation.
The level of government involvement in the economy took
on
increasing significance after Uruguay entered a period of
economic stagnation. When export earnings leveled off in
the
1950s, the state's two roles in the economy became
difficult to
sustain yet vital to the population. Growing numbers of
unemployed persons and retirees depended on the social
welfare
system, even as government revenues used to support that
system
declined. In addition, the overall economic slowdown made
publicsector employment extremely attractive. Public employment,
which
was controlled by political parties rather than market
forces,
increased at 2.6 percent per year during 1955-61, while
privatesector employment grew at only 0.9 percent. Government
consumption expenditures for salaries and services
remained high,
but public investment was scaled back, penalizing future
productivity. Despite this shift in the spending pattern,
the
state's income did not keep pace with its expenditures. By
the
1960s, a public-sector deficit had developed, requiring
borrowing
from abroad and helping to fuel inflation.
The public-sector deficit was the hallmark of Uruguay's
stagnated economy in the 1960s. Thereafter, efforts to
reduce the
deficit were a central feature of structural reforms.
However,
the web of government commitments within the
economy--involving
both administrative and productive activity--made this a
difficult task. The military government (1973-85)
partially
succeeded at the larger task of reorienting the economy
toward
world markets but made only modest headway against the
publicsector deficit. During the second half of the 1980s, the
deficit
was at first reduced but then increased again in the last
two
years of the Sanguinetti administration.
Data as of December 1990
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