Table of Contents

  • Economic growth is just one facet of development. Policy makers are focused on ensuring that their country’s development path is sustainable and that the lives of citizens improve, which calls for the need to reconcile economic, social and environmental objectives.

  • Improvements in living standards and outcomes that matter for people’s quality of life are essential for economic and social development. Since the economic crisis of 2002 Uruguay has made significant progress in this direction, while also increasing its integration in the global economy. This has translated into higher growth rates and a reduction in inequalities. Uruguay has chosen its own path in terms of policies for development, compared to other Latin American countries and the OECD. The country’s particular mix of policies shows that there is no single “model” of development. For example, reforms to increase the progressivity of the tax and transfer system, as well as efforts to increase formal jobs, were key to improving living standards.

  • The land, people and electoral cycle

  • Uruguay has made remarkable progress over the past decade. The recovery from the deep financial crisis of 2002 has turned into the longest period of economic growth in decades. Stable macroeconomic policies and a favourable external environment have permitted brisk growth and the financing of social policies that have reversed devastating effects on the fabric of society. Substantial improvements in several dimensions of human well-being have occurred during this period, alongside considerable reductions in external risks. The conditions ahead, however, may present challenges to maintaining performance. Growth is slowing in part because of cyclical and external factors, while constraints on human capital, infrastructure and financing will lower growth potential over the medium and long term. Several bottlenecks require determined policy action if growth and social progress are to continue at a similar pace.

  • This chapter uses the OECD framework for measuring well-being to diagnose strengths and weaknesses of different dimensions of well-being in Uruguay. It starts with a review of Uruguay’s historical performance focusing on the effects of the 2002 financial crisis and subsequent expansion in the following decade. It then presents the well-being outcomes found in the “OECD How’s Life?” framework. From an international perspective, well-being outcomes in the country are better than could be expected for many areas, including life satisfaction, environmental quality, health, trust, social network support, literacy and access to improved sanitation. However, some areas remain a challenge, such as child poverty, educational attainment, youth employment and personal security. While material conditions are generally high and income inequalities are comparatively low for the region, inequality remains a problem, with children and young people in particular at risk of social exclusion.

  • The period of expansion that started after the economic and financial crisis of 2001-02 was the first significant acceleration in GDP growth since the early 1970s, and the strongest expansion in GDP per capita since the last century. This chapter reviews long-term trends in economic growth from an aggregate and sectorial perspective. It explores the proximate causes behind income and labour productivity gaps, as well as some of the framework conditions and policies that might constitute a challenge to sustaining growth momentum. It places special emphasis on changes in the economic structure, in particular exports, given the small size of the Uruguayan economy and the importance of trade for economic performance. Lack of human capital and skills appear to restrict growth prospects, and policies are focusing on expanding infrastructure investment to overcome constraints in this area. Important changes within and across economic activities are taking place, including technological progress in several primary activities and the expansion of some high value-added services. These changes have been stimulated by external demand and investments, encouraged by recent generous government incentives. However, they also place greater pressure on human resources and require a rethinking of existing support policies to maximise their development impact.

  • Economic growth and recent reforms have reduced poverty and inequality in Uruguay, overcoming the effects of recent economic crises. Despite these improvements, inequalities remain high in several areas. Ex-ante income inequality, one of the lowest in Latin America, is persistent and calls for more effective targeting of policies towards disadvantaged groups. Overall, education quality and access have underperformed in recent years. Disparity in access to and quality of education is a fundamental challenge, particularly in secondary education. Labour markets have performed well, however unemployment remains a problem among youth. Wage differentials by educational attainment have tumbled, due to a re-composition of household incomes. In terms of expenditure, the rise in per capita income and the growing middle class will lead to greater demand for social transfers and higher medical expenses.

  • This chapter discusses issues related to the macroeconomic framework and the institutional settings needed to consolidate recent gains in terms of economic growth and reduction in inequalities. After a brief discussion of the post-crisis recovery of the Uruguayan economy since 2002, it sets out the main challenges facing the economy and the appropriate policy directions necessary to address short, medium and longer-term issues. Particular attention is paid to opportunities and challenges linked to the materialisation of significant investments in the mining sector, as well as fiscal frameworks that could help reap the most benefits.