Uruguay's economy remains dependent on agriculture and services. Agriculture and agri-industry account for 23% of GDP, and for over two-thirds of total exports. Leading economic sectors include meat processing, agribusiness, wood, wool, leather production and apparel, textiles, and chemicals. Though still small, the information software industry is growing rapidly.
In 2002, Uruguay went through the steepest economic and financial crisis in recent history, which developed mostly from external factors. Devaluation in Brazil in 1999 made Uruguayan goods less competitive, and an outbreak of foot and mouth disease in 2001 curtailed beef exports to North America. Starting in late 2001, an economic crisis in Argentina undermined Uruguay's economy, with exports to Argentina and tourist revenues falling dramatically. In mid-2002 Argentine withdrawals from Uruguayan banks started a bank run that was overcome only by massive borrowing from international financial institutions. This, in turn, led to serious debt sustainability problems. A successful debt swap helped restore confidence and significantly reduced country risk.
Uruguay's economy resumed mild growth in 2003--with a mild 0.8% rise in GDP--and accelerated in 2004 and 2005 with growth rates of 5.0% and 7.5%, respectively. Growth equaled 4.6% in 2006, and reached 7.6% in 2007 and 8.9% in 2008. Uruguay's spectacular recovery over the past couple of years has been based on increased exports. Uruguay enjoys a positive investment climate, with a strong legal system and open financial markets. It grants equal treatment to national and foreign investors and, aside from very few sectors, there is neither de jure nor de facto discrimination toward investment by source or origin.
Uruguay has traditionally favored substantial state involvement in the economy, and privatization is still widely opposed. Recent governments have carried out cautious programs of economic liberalization similar to those in many other Latin American countries. They included lowering tariffs, controlling deficit spending, reducing inflation, and cutting the size of government. Uruguay's economy is based on free enterprise and private ownership. In spite of some de-monopolization and privatization over the past 10 years, the state continues to play a major role in the economy, owning either fully or partially companies in insurance, water supply, electricity, telephone service, petroleum refining, airlines, postal service, railways, and banking.
Uruguay has largely diversified its trade in recent years and reduced its longstanding dependency on Argentina and Brazil. It is a founding member of MERCOSUR, the Southern Cone trading bloc also composed of Argentina, Brazil, and Paraguay. The MERCOSUR Secretariat is located in Montevideo.
The investment climate is generally positive. Investments are allowed without prior authorization, foreign and national investors are treated alike, and there is fully free remittance of capital and profits. About 100 American firms operate in Uruguay and, according to the U.S. Department of Commerce, the stock of U.S. direct investment amounts to $656 million.
Information by U.S. Department of State
