Challenges facing Lacalle Pou and Uruguay (apart from coronavirus)

While policy changes are needed in Uruguay to help spur growth, modernize the state and strengthen government finances, deep reforms are unlikely, an economist and think-tank director told BNamericas.

A strong statist culture can play against major overhauls in the country – a beacon of stability in the region.

Newly inaugurated President Luis Lacalle Pou (pictured), who is in favor of introducing changes such as limiting spending, reducing bureaucracy and boosting competition, faces the additional challenge of juggling the demands of the constituent parties that comprise his coalition government.

“I don’t think he will push for any aggressive reforms,” said Alejandro Chafuen, managing director, international, at US think-tank Acton Institute.

Chafuen, who also works with think-tanks in Uruguay, added that center-right Lacalle Pou will need to capitalize on political tailwinds during his first year in office, which may now be dominated by efforts to mitigate the impact of the coronavirus pandemic.

Like in most other countries in the region, growth will likely decelerate and spending increase this year as authorities focus on measures to protect citizens and support the economy amid the pandemic.   

In Uruguay, among the challenges facing Lacalle Pou, boosting growth and trimming the deficit are seen as the biggest.

As part of efforts to strengthen the economy, Lacalle Pou, whose election victory ended 15 years of rule under the center-left Frente Amplio coalition, wants to overhaul the social security system to make it more sustainable. He has also spoken in favor of liberalizing the energy sector to spur competition and help drive down prices. This would require ending the monopoly held by state oil and cement firm Ancap. Unions, in a 2003 referendum, defeated an attempt to liberalize the energy industry – and recent Ancap union comments indicate their stance has not changed.

“It’s good that he expressed that [wish]. In a country where the state-owned companies are regarded as almost sacrosanct, it will be very hard,” Chafuen said. “In the age of optimistic neoliberalism, where Argentina and Brazil were privatizing, the Uruguayans basically decided to put privatization to the test of a poll, a plebiscite – and they lost, even when all the continent was moving toward privatization.

“It will be difficult. I would just open areas where they could increase competition.” 

Another plank in Lacalle Pou’s strategy is attracting investment and wealthy immigrants. The country already has a favorable framework in place, a draw for companies and affluent people in neighboring Argentina.  

Chafuen said: “If [the parties] can work to reinforce the rule of law – which is already the best in Latin America – and then open new areas to investment I think then what we have seen in terms of Argentine companies moving [to Uruguay] will accelerate.” 

Uruguay, with solid public institutions largely respected by its citizens, is one of Latin America’s most stable countries. 

The nation’s deficit, however, is growing and growth has slackened. The IMF has urged the country to sharpen its focus on reforming the pension system and state-owned enterprises to help control expenses and debt.