Uruguay has potential to become 'New Zealand of South America'

Uruguay, with strong public institutions largely respected by its citizens, is one of Latin America’s most stable countries. It has also been praised for tackling poverty and for the coverage rates achieved by its pension system.    

Uruguayans head to the polls on October 27 to choose their next president. Among the major issues at stake are the dominance of the center-left Frente Amplio coalition - in power since 2005 – an economy that has been slowing in recent years, and law and order.

The frontrunners are Daniel Martínez of Frente Amplio, center-right Luis Lacalle Pou of Partido Nacional and center-left/centrist Ernesto Talvi of Partido Colorado. There is also a fourth candidate nipping at their heels – retired general Manini Ríos, who has made tackling the issue of rising crime the central plank of his campaign. 

As election day draws nearer, BNamericas recently spoke to Alejandro Chafuen, managing director, international, at US think-tank Acton Institute about the electoral race, Uruguay’s potential to emulate New Zealand - which started implementing pro-market reforms in the 1980s - and more.

BNamericas: What are some of the central issues in this year’s elections?
 
Chafuen: The key issue, I believe, is the continuity of the left-wing coalition in government and putting an end to that cycle.
 
Before, transitions of governments of different ideological leanings took place more often. I think it would be healthy for them to have a change. 
 
Crime and security is [also] a major issue and we are seeing the rise of former general Manini Ríos, who is making that topic the key of his campaign.
 
The issue of crime and security goes hand in hand with a prosperous economy. I don’t know if Frente Amplio would have the guts to have a sort of law and order, increased security-type of government. Crime started to rise under their watch. 
 
[Another] is getting the economy going because the rate of growth is equivalent to a stagnation and it could get worse. The other economic point is that the deficit is approaching 5% of GDP, which is problematic for Uruguay.
 
BNamericas: In this electoral cycle are candidates talking about new issues?
 
Chafuen: The international situation is new. But Uruguay has been one of the most stable countries, things don’t change much. The main different thing is the emergence of a new, what you could call disruptive candidate, like you have in other countries, in Juan Sartori, a young, modern businessman who made some daring promises and proposals [such as providing free medicine to pensioners]. That shook up, a little, not only one party but also the traditional way that the political discourse was taking place in Uruguay. For a while they even tried not to mention his name because it was almost like a challenge to the political establishment.  
 
BNamericas: Are any of the candidates proposing policies that one could consider radical?
 
Chafuen: No. You get a continuation of mediocracy. That’s how I see it. It’s a middle-of-the-road country. 
 
BNamericas: What can we take away from the primaries?
 
Chafuen: [One takeaway] is that a law and order and moderate, market-oriented policy coalition might be formed, with more emphasis on security, if Manini Ríos continues to do well.
 
BNamericas: There have been calls for social security reform in Uruguay to help make the system more sustainable. How likely is it that the next administration tackles this issue?
 
Chafuen: I have noted a high level of understanding of the need, and of the economic reality, but not much willingness to make changes deeper than what the political system allows. It is possible [however]. 
 
BNamericas: Could Uruguay’s neutral stance on Venezuela negatively impact Frente Amplio?
 
Chafuen: It will not be the decisive factor at all in the election, but marginally it will help the opposition. 
 
BNamericas: The IMF said private investment has been sluggish and has weighed on growth. What could the next administration do to address this?
 
Chafuen: First show clear indications they will put their fiscal house in order. Hopefully it goes through supply side measures and also alignment with the developed world. They need to act fast on that front.
 
If Frente Amplio wins, Uruguay risks losing much of the goodwill it has in the international financial community. 
 
[If it wins they] would have more barriers to implement the needed reforms due to the internal composition of the coalition. Uruguay almost needs something that will disrupt it towards a positive, pro-growth, pro-free market, pro-integration with the world shock. 
 
They praise their engineers, software people, but for that you need even better rule of law, more integration into the world. I support the idea of an open market for wireless for small countries like Uruguay. Uruguay could become an important hub, not only for the region but also for the world.
 
BNamericas: What about privatizations?
 
Chafuen: It’s still open. They could do it and learn from the past mistakes [of others] and become more open with better rules for private investment.
 
BNamericas: You mentioned in a past article that Uruguay has the potential to become the New Zealand of South America.
 
Chafuen: Nothing material prevents Uruguay becoming a potential New Zealand. First, continue along the path of opening up the economy and improving private property law and regulations. 
 
New Zealand became a star in the world even under a left-wing government. They implemented market-oriented reforms focusing on outcomes, checking what the cost-benefit of regulations were. 
 
New Zealand [however] has also had more monetary stability than Uruguay, which can suffer shocks whenever Argentina or Brazil suffer a currency devaluation. New Zealand was able to maintain social spending. Basically, it was able to do it because it greatly liberated its economy.
 
In Uruguay, the conditions are there but it will not happen automatically. 
 
BNamericas: What’s the general view of the recent Mercosur-EU free trade agreement in Uruguay?
 
Chafuen: As an economist I expect people will put their own interests first. Each sector that might be affected by the agreement will try to block part of it. It’s very early in the debate. 
 
Even if nothing happens – if it is blocked in the future - I think the whole debate will have been positive for Latin America. Any talk that is in favor of people and countries trading and collaborating together with fewer barriers is positive.