Uruguay election not expected to produce major economic change

Uruguay’s Frente Amplio party is aiming to regain the presidency in October 27’s general election, an outcome that would likely lead to tax increases but not many structural reforms.

The reality is that today the left-wing party does not differ that much from the ruling center-right government when it comes to economic policy, according to former deputy central bank president Javier de Haedo.

“There’s one model, but two points of view,” De Haedo, who leads the economic research center at Universidad Católica del Uruguay, told an election outlook webinar held by daily El País.

Although Frente Amplio differs from the ruling National Party by focusing on wealth redistribution and favoring unions, both groups have similar approaches to economic policies, the academic said.

As an example he pointed out that the current administration, despite early promises to reign in public spending, has operated with fiscal deficits and increased the public debt over the past five years.

“Our first fiscal rule is that we always have a deficit, and the second non-written rule is that we tighten at the beginning and relax later,” De Haedo said.

On average, President Luis Lacalle Pou’s government has registered an annual deficit equivalent to 1.9% of GDP, almost identical to the 2% average of all the previous governments since the return to democracy in 1985, according to De Haedo.

The public debt, which increased under the previous Frente Amplio administrations (2005-2020), continued to climb under Lacalle and reached 50% of GDP last year.

Though De Haedo pointed out that nine percentage points of that increase came from the pandemic, the debt continued to increase by two points over the last three and a half years.

“Same economic policy, same results, same DNA, and the same aversion towards structural reforms,” he said, adding that even Lacalle admitted that his 2023 pension reform, which hiked the retirement age to 65 from 60, was significantly watered down and did not have much impact.

The current election frontrunner is Frente Amplio’s Yamandú Orsi and polls show he will likely face a runoff vote against the National Party's Álvaro Delgado, which would be held on November 24. 

Though Orsi has said he will steer away from unpopular tax hikes and instead focus on economic growth to cut the deficit, De Haedo pointed out that such measures are part of his party’s platform and that an eventual Frente Amplio administration would most likely increase taxes on high-income individuals, or target capital gains. as a gesture to its core supporters.