Uruguay WT/TPR/S/50
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I. ECONOMIC ENVIRONMENT
(1) MAJOR FEATURES OF THE ECONOMY
1. Since the previous Trade Policy Review in 1992, the Uruguayan economy has grown on
average at 4.3%.  In 1995, following the Mexican financial crisis, domestic private demand and public
sector investment decreased, leading to a contraction in GDP.  However, the economy recovered
in 1996 and 1997 mainly because of a rebound in private sector investment and private consumption.Economic growth has translated into a general improvement in the well-being of the population:  GDP
per capita in nominal terms has increased substantially since 1992, from some US$3,800 to US$6,000
and other indicators have also improved (Table I.1).
Table I.1
Basic economic and social indicators, 1992-97
1992 1993 1994 1995 1996 1997a
Population (million) 3.1 3.2 3.2 3.2 3.2 3.3
Labour force ('000) 1,256 1,261 1,308 1,343 1,333 1,335
Unemployment (%) 9.0 8.3 9.2 10.3 11.9 11.5
Per capita GDP (US$) 3,786 4,383 5,127 5,654 5,963 6,048
GDP (US$ million) 11,849 13,808 16,253 18,037 19,116 19,959
Employment by economic activity (%)
   Agriculture 4.5 3.8 4.3 4.5 4.2 4.9
   Manufacturingb20.9 20.4 19.3 18.1 16.8 16.9
   Services 74.6 75.8 76.4 77.4 79.0 78.2
Primary school enrollment ratio (%) 108.0 109.0 109.0 111.0 .. ..
Secondary school enrollment ratio (%) 83.0 81.0 81.0 82.0 .. ..
.. Not available.
a Preliminary data.
b Includes mining and quarrying.
Source: World Bank, World Development Indicators (1998);  and authorities of Uruguay.
2. There has been only a slight change in the sectoral composition of GDP since the previous
Review:  services has increased its share from 65.8% to 66.0%, agriculture fell slightly from 11.7% to
11.4%;  while manufacturing has declined from 23.7% to 20.2% (Chart I, based on constant pricedata).  This has been a result of the restructuring of the manufacturing sector, which has led to some
shut-downs and bankruptcies of enterprises una ble to compete in MERCOSUR's extended market.
Much of manufacturing is agro-industrial production, so that these overall data understate the
importance of the primary sector in the Uruguayan economy (Chapter IV).
3. This restructuring has also had an impact on the labour market, with the services sector
attracting labour from the manufacturing sector.  As a consequence, the share of total employment in
manufacturing has declined from 21% to 17% (Table I.1).  The increase in unemployment since 1993
reflects an increase in participation rates as well as structural changes.  Uruguayan enterprises are
resorting to the adoption of more capital-intensive technologies to offset the high cost of labour.
1  The
                                                     
1 The social security overhead in Uruguay is high, increasing basic wage costs of an employer by over
50%. Evidence of the non-neutral nature of technological change may be found in the fact that hours employed
in manufacturing in 1996 amounted to only 60% of those employed in 1987, while output has remainedpractically constant.WT/TPR/S/50 Trade Policies Review
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reduction in labour taxes has reduced distortions in the labour market, but labour market regulations
still render labour contracts relatively inflexible.
Services
65.81992Per cent, based on constant 1983 prices
Estimates.           
Subtracts imputed earnings of financial intermediaries and adds import duties, thus net adjustment for 1992 accounts to -1.1% 
and for 1997 to 2.4%.  
Data provided by the authorities of Uruguay.Chart I.1
Sectoral distribution of GDP, 1992 and 1997
Financial,
 insurance,
real estate
& business
21.7Agriculture
11.7Manufacturing 
(inc. mining)
20.2
Services
66.01997
Commerce, 
restaurants
 & hotels
12.7
Transport &    
telecommunications
7.6   a
Manufacturing
(inc. mining ) 
23.7
Other community,  social & personal 
16.8Construction  3.0Electricity, 
gas & water  4.0Agriculture
11.4
Transport & 
telecommunications
9.7Electricity, 
gas & water  3.8
Other community, social & personal
14.9Commerce, 
restaurants 
& hotels
14.2
Construction 2.8Financial, 
insurance,
real estate
& business
20.6
a
b
Source :Total  :  Ur$235.3 millionbTotal  :  Ur$280.1 millionb
4. International trade has become increasingly important for Uruguay.  Thus, as a result of the
opening up of the economy – unilaterally, in the context of MERCOSUR and the implementation of
WTO commitments – both imports and exports have grown steadily since 1992.  The ratio of trade in
goods and non-factor services to GDP has increased from some 65% in 1992 to 80% in 1997
(constant prices), an indication of the increasing integration of Uruguay into the world economy
(Chart I.2).2  However, imports have grown faster than exports, which has led to persistent current
account deficits.  As discussed below, primary and agro-industrial products are by far Uruguay's mostimportant exports.
                                                     
2 At current prices, the ratios for 1992 and 1997 are 43.5% and 45.4%, respectively.Uruguay WT/TPR/S/50
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020406080100
1992 93 94 95 96 1997 aPer cent, based on constant 1983 prices
Estimates.
XGS and MGS denote exports (X) and imports (M) of goods and non-factor services.  IMF, International Financial Statistics (various issues).Chart I.2
Trade in goods and non-factor services as shares of GDP , 1992-97
a
Note:Source:XGS/GDP MGS/GDP Total trade
(2) RECENT ECONOMIC DEVELOPMENTS
5. Since 1990 two successive governments have implemented an anti-inflationary strategy based
on: the progressive de-indexation of the economy, in cluding forward-looking wage adjustments in the
public sector;  a reduction in the rate of currency depreciation vis-à-vis  the U.S. dollar within an
exchange band system;  the strengthening of public finances;  and a series of structural reforms,
including trade liberalization, changes in the social security system and the privatization of certain
public services.  These measures have resulted in sustained growth (with the exception of 1995), a
decrease in the public deficit, and lower inflation, while the external current account deficit hasremained moderate and foreign reserves have increased.
(i) Aggregate supply and demand
6. During 1992-97 economic performance in Uruguay has been strong.  As shown in Chart I.3,
GDP grew at an average of 5.7% from 1992 to 1994, before declining in 1995 in the aftermath of the
Mexican crisis.  However the economy recuperated in 1996 and 1997, with GDP growing by 5% eachyear.  This growth performance was obtained in parallel with a dramatic reduction of inflation, which
fell from an annual rate of 68.4% to 15.2% over this period.  During the first quarter of 1998 the
economy continued to grow, while inflation amounted to 2.4% over the quarter
3;  more recent data
from the authorities show that annual inflation in the 12 months to June 1998 has fallen to 10.2%.  In
contrast, on average, unemployment increased sligh tly over the period;  however, this showed a
modest decline in 1997, and in the first semester of 1998 fell to 9.8% (data supplied by the
authorities).
                                                     
3 Búsqueda , 7 May 1998 and 11 June 1998.WT/TPR/S/50 Trade Policies Review
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-4-20246810
1992 93 94 95 96 199701020304050607080Per cent
Estimates
GDP based on Uruguayan 1983 peso prices.Data provided by the Uruguayan authorities and IMF, International Financial Statistics
 (various Chart I.3
Growth in GDP and consumer price index , 1992-97
a
Note:Source
:Per cent
GDP (left scale )
Consumer price index (right scale)
a
7. During 1992-96 private consumption was the main engine of growth, being the only demand
component which was positive throughout the period (Chart I.4).  This was partly related to the
increased availability of credit.4  Government consumption has been low during this period, as a result
of tight fiscal discipline.  The contribution of investment to demand was positive only during 1992-94
(Chart I.4).  Nevertheless, since 1992 there has b een an increase in investment in machinery and
equipment (Table I.2), with an a ssociated growth in productivity.5  The contribution of net exports to
demand has been negative in recent years, as imports have grown at a faster pace than exports
throughout the period.  This is partly a result of opening up the economy but also due to theappreciation of the real effective exchange rate (see below).
8. Since 1992 growth has been generated mainly by the services sector (Chart I.4).  Performance
in other sectors was more erratic, although manufacturing again made a positive contribution in
1996-97, suggesting that the benefits of restructuring in that sector are starting to be felt.  While
Uruguay remains a major exporter of agricultural products such as beef and wool, the contribution ofagriculture to the growth in aggregate supply has been relatively modest and variable in recent years.
                                                     
4 In 1997 consumption loans amounted to 21.5% of total loans granted by the private banks, while
in 1992 these loans amounted to some 10% of total credit ( Banco Central del Uruguay, 1998a).
5 Búsqueda , 19 March 1998.Uruguay WT/TPR/S/50
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-6-4-2024681012
1992 93 94 95 96 1997Government consumptionPrivate consum ption Investment GDP
Net exports
0246810121416
1992 93 94 95 96 1997Chart I.4
Selected indicators of macroeconomic development, 1992-97
(a) Contribution of supply components to growth 
(b) Contribution of demand components to growth
(c) Savings and investmentPer cent
Per cent
Central Bank of Uruguay; Government of Uruguay.-20246810
1992 93 94 95 96 1997
GDI/GDP GDS/GDPAgriculture
Minin g  Industry
GDPServices
Source :Per centWT/TPR/S/50 Trade Policies Review
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9. Both savings and investment as a percentage of GDP run closely in parallel, remaining at
modest levels of around 12% and 14%, respectively (Chart I.4).6  There is a small savings-investment
gap, the counterpart of which has been a persistent current account deficit of just under 3% of GDP,
financed largely by foreign borrowing.
Table I.2
Investment in fixed capital
Ur$ ('000) at constant 1983 prices
1992 1993 1994 1995 1996a1997a
Total investment in fixed capital 28,990 33,727 34,348 32,785 36,443 39,483
Construction 15,140 18,392 18,366 15,452 15,686 16,039
Plantations 676 696 921 1,098 1,142 1,218
Machinery and equipment 13,173 14,639 15,061 16,325 19,615 22,226
Public investment in fixed capital 7,945 10,768 11,866 8,417 9,016 9,518
Construction 5,705 7,648 8,126 6,307 6,544 6,876
Machinery and equipment 2,240 3,120 3,740 2,110 2,472 2,642
Private investment in fixed capital 21,045 22,959 22,482 24,368 27,427 29,965
Construction 9,435 10,744 10,240 9,145 9,142 9,163
Plantations 676 696 921 1,098 1,142 1,218
Machinery and equipment 10,933 11,519 11,321 14,125 17,143 19,584
aP r e l i m i n a r y .
Source: Central Bank of Uruguay.
(ii) Public finances
10. Fiscal restraint has been a key element of the authorities' strategy to bring down inflation
which, as noted, has fallen from 68.4% in 1992 to 15.2% in 1997 (Table I.3).  More recent data
supplied by the authorities show that inflation has continued to fall in 1998, reaching 10.2% in the
12 months to June 1998.  Measures taken to restrain the growth of expenditures include the
curtailment of hiring in the public sector, de-indexation of public sector wages and service charges,
limiting discretionary expenditures on goods and services, and reducing capital expenditure.Structural changes have also contributed to the strengthening of public sector finances.  These reforms
which aim at a definitive and lasting improvement of the fiscal deficit include: (i) improvements in
the operations of public enterprises;  (ii) completion of the reform of the State;  (iii) the reform of the
social security system;  and (iv) the strengthening of tax administration (Box I.1).
11. Prima facie, the improvement in Government finances is not evident from the overall fiscal
deficit which has remained stable below 2% of GDP, with the exception of 1994 (Table I.3).
However, the authorities indicated that, if the cost of the reform of the social security system was
excluded, the public sector deficit would be eliminated altogether.  In any event, it is expected that
fiscal expenditure will decline as the reform is completed.
12. The importance of fiscal reform for reducing inflation is not directly related to the size of the
overall deficit which, as noted, has remained relatively stable as a share of GDP.  The authorities
noted that fiscal discipline is key to continue reducing inflation, which they expect to fall to 7-9% in
the current year.  This and other factors mentioned earlier have all contributed to reducing the level of
inflation.
                                                     
6 Historically investment as percentage of GDP in Uruguay has been low – below 14%.  Given
Uruguay's solid growth, either the investment is relatively efficient or there is a measurement error so that there
is more investment than is apparent (Torello and Noya, 1992).Uruguay WT/TPR/S/50
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Box I.1  Restructuring of public finances
The restructuring of public finances in recen t years has affected expenditures and revenues.
First, since 1990 there have been important advances in the deregulation process which will have a long-term
effect on the fiscal balance.  As described in Chapters III and IV, state intervention in the economy has beenfalling:  some services have been privatized while in other areas the private sector has been allowed toparticipate in various activities previously reserved for the State.
Second, in September 1995 the Government enacted legislation to reform the social security system and has
reduced Government transfers to finance pensions.  The modernization of the social security system has
proceeded faster than expected, with  more than 450,000 persons shifting their contributions to the private
capitalized pension system.
Third, in 1996 Congress passed legislation establishing a five-year framework for the reform of the centraladministration to overhaul the bureaucracy of Central Government entities and streamline operations.  Public
sector employment has been reduced through a voluntary retirement programme; duplicated divisions were
eliminated and functions have been simplified.  Under the programme there has been a reduction of14,000 positions in the public sector.
Fourth, to further reduce expenditure s the de-indexation law fo r the public sector wages and tariffs (service
charges) was passed.  Under this law periodic indexation was shifted from four to six months, and will be
shifted to once a year when annual inflation drops below 10%.  Public sector wages will be adjusted byprojected inflation, plus a supplement to improve the pay structure and reflect productivity gains.  Salaries inthe private sector will continue to be  determined without state intervention.
Fifth, to increase fis cal revenues, in 1995 the Government introduced  a tax reform which entailed an increase
in tax rates, elimination of a number of exemptions, modification of existing taxes and improvement in tax
collection.  While tax revenue as a percentage of GDP has only increased slightly from 19% to 20%, theimportance of VAT and income taxes has increased:  the share of VAT in tax revenue has increased from 49%in 1993 to 53% in 1997 while the share of income tax has increased from 10.5% to 13%.  Reflecting tradeliberalization, the share of trade taxes has fallen from 8.0% to 6.9% in the same period.
13. The authorities' fiscal programme for 1998 aims at further reducing the consolidated public
sector deficit.  In the medium term the objective is to increase public savings through a gradual
reduction in current government expenditure.  Public sector revenues are expected to increase, as a
result of the tax reform, while expenditures should fall as the reform of the social security system is
completed.
14. A reduction in fiscal incentives to promote development and production in specific sectors of
the economy would also reduce budgetary costs.  Estim ates of the total annual costs of various fiscal
incentives in terms of revenue forgone were not available;  but fiscal incentives are a major feature of
Uruguay's economic policy (Chapter III).  Apart from any possible effects on resource allocation and
productivity, such incentives have a negative effect on the Government's fiscal position, therebyreducing national savings, widening the savings-investment gap and exacerbating the current account
deficit.WT/TPR/S/50 Trade Policies Review
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Table I.3
Economic performance, 1992-97
(based on 1983 Uruguayan peso prices, unless otherwise indicated)
1992 1993 1994 1995 1996 1997a
Annual percentage change
GDP 7.9 3.0 6.3 -1.8 5.2 5.1
Real effective exchange rate (1990=100) 7.0 17.6 5.7 2.7 2.0 5.1
Private consumption 14.7 6.3 8.2 -3.0 8.0 6.0
General government consumption 1.5 0.9 4.5 0.2 5.0 2.9
Gross domestic investment 18.2 16.3 1.8 -4.5 11.1 8.3
   Private investment 34.7 9.1 -2.1 8.4 12.6 9.3
   Public investment -10.7 35.5 10.2 -29.1 7.1 5.6
Exports of goods + non-factor services 9.9 8.3 14.6 -0.1 10.1 13.1
Imports of goods + non-factor services 25.2 18.8 16.8 -0.3 11.4 13.2
Consumer price index (1990=100) 68.4 52.9 44.1 35.4 24.3 15.2
Interest rates (per cent)
   Deposit rate 54.5 39.4 37.0 38.2 28.1 19.6
   Lending rate 117.8 97.3 95.1 99.1 91.5 71.5
Reserve money (M1) 54.8 61.0 44.0 32.7 28.6 18.8
Broad money (M2) 50.8 49.7 37.3 38.2 29.4 21.3
Per cent of GDP
Total debt (US$)
   Domestic debt 8.9 7.9 7.8 7.2 6.9 8.3
   External debt 40.9 37.6 34.3 33.0 33.6 ..
       Public external debt 29.2 28.9 28.6 26.8 26.1 26.1
Gross domestic investment 13.3 14.6 13.7 12.9 12.6 12.7
Gross national savings 12.8 13.0 11.8 12.0 11.9 11.9
Fiscal Balance (% of GDP in US$)
   Government revenues 18.9 19.0 19.5 18.7 19.1 20.4
   Government expenditures 18.6 20.2 21.7 21.0 21.1 22.1
   Central Government balance 0.3 -1.1 -2.1 -2.1 -2.0 -1.7
   Overall balance including reforms 0.5 -1.5 -2.7 -1.6 -1.6 -1.4
   Overall balance without reforms 0.5 -1.5 -2.7 -1.6 -0.8 -0.1
a Preliminary data.
Source: Data provided by authorities of Uruguay.
(iii) Monetary policy7
15. According to the Central Bank, Uruguay's monetary policy is geared at keeping inflation
under control, using nominal exchange rate stability as the main instrument to achieve this goal.
Central Bank intervention to defend the currency necessarily entails a certain loss of control over the
money supply, limiting the effectiveness of monetary policy.  In fact, during most of the 1990s
                                                     
7 This section is based on data from Banco Central del Uruguay  (1997a).Uruguay WT/TPR/S/50
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monetary aggregates generally turned out higher than envisaged because of capital inflows, which had
to be accommodated to keep the exchange rate stable.  Nevertheless, the growth in the supply of
money (M1 and M2) was substantially curtailed during the 1990s (Table I.3).
16. In its open-market operations to remove excess liquidity from banks, the Central Bank must
offer sufficiently attractive interest rates to induce banks to place excess pesos in national currency
financial assets instead of dumping them into the foreign exchange market and putting pressure on thenominal exchange rate.  This has kept interest rates high, although average deposit and lending
interest rates have declined since 1992.  The spread between borrowing and lending rates remains
high, reflecting inefficiencies in the banking system (Chapter IV).
17. The structural reforms of Government financ es (Box I.1), combined with tight monetary
policy through the exchange rate, have led to a steady and substantial reduction of the inflation ratefrom over 68% in 1992 to 15.2% in 1997 (Table I.3).  The aim is to achieve single digit inflation
in 1998.
18. Apart from the various factors already discussed, macroeconomic stability in the region and
the reduction in import duties have contributed to reducing imported inflationary pressures.
(iv) Exchange rate developments
19. The currency of Uruguay is the Uruguayan peso (Ur$), which replaced the new Uruguayan
peso (NUr$) at a ratio of 1000 to 1 on 31 March 1993.  Since 2 November 1992, Uruguay has
followed a managed float whereby the Central Bank periodically announces its intervention buying
and selling rates.
8  The Central Bank of Uruguay (CBU) intervenes to ensure that the rate remains
within a 7% band of a target rate which is depreciated monthly at a predetermined pace intended to
keep inflation under control.  However, the reductio n in the depreciation rate of the exchange rate
vis-à-vis  the U.S. dollar, has resulted in a real appreciation of the Ur$ (Chart I.5).  This has been
reinforced, according to the authorities, by the behaviour of prices of non-tradeable goods.  This has
been associated with rising but manageable external current account deficits.
                                                     
8 Uruguay's exchange system is free of restrictions on payments and transfers for international
transactions and there is no parallel market for foreign exchange (IMF, 1997).WT/TPR/S/50 Trade Policies Review
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-2,000-1,00001,0002,0003,0004,000
1990 91 92 93 94 95 96 1997020406080100120140160180Chart I.5
REER index and trade in goods and non-fa ctor services, 1990-97         
US$million Index (1990=100)
Exportsa
Importsa Balance of trade  
REER (right scale)b 
Preliminary data for 1997.
An increase (decrease) indicates appreciation (depreciation).
REER:  real effective exchange rate.
Government of Uruguay; and IMF, International Financial Statistics  (1998).a
b
Note:
Source :
(v) Balance of payments
20. In the period 1992-97, Uruguay consistently ran a current account deficit, but this has
remained below 2% of GDP since 1995 (Table I.4).  This has been caused primarily by deficits in the
merchandise trade balance as imports have grown more rapidly than exports, mainly because of trade
liberalization, particularly within MERCOSUR.  To meet the challenge of the wider regional market,
there was a need to improve industrial facilities through investing in machinery and equipment whichhad to be imported.  Moreover, Uruguayan industry's reliance on imported inputs has increased.
9
Exports have also grown strongly within the regi on, but many of Uruguay's processed agricultural
exports are destined for third countries where some such products face import barriers.  The real
exchange rate appreciation has also had a constraining effect on exports in those markets.
21. On the services side, Uruguay shows increasing su rpluses.  This represents a steady growth in
tourism and international freight receipts, which include receipts from transportation services within
MERCOSUR provided by trucks and ships.10  Tourism generates substantial income, and has become
the main individual income component of exports of goods and services, exceeding that of the
traditional exports of agricultural products.11
                                                     
9 Banco Central del Uruguay (1997a).
10 ABN AMRO Incorporated (1998).
11 "http://www.embassy.org/uruguay/econ/eecon2.htm", December 1997.Uruguay WT/TPR/S/50
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Table I.4
Balance-of-payments, 1992-97
(US$ million)
1992 1993 1994 1995 1996 1997a
Overall balance 153.0 213.4 238.0 209.4 143.8 330.3
Current account balance -115.7 -353.3 -438.6 -212.5 -233.5 -321.1
   Merchandise trade balance -234.2 -473.0 -686.2 -563.0 -686.9 -723.1
      Exports f.o.b. 1,702.5 1,645.3 1,913.4 2,147.6 2,448.5 2,780.5
      Imports c.i.f. 1,936.7 2,118.3 2,599.6 2,710.6 3,135.4 3,503.6
   Services, net 277.0 275.1 449.5 501.5 559.6 587.6
   Interest and dividends -187.1 -193.0 -243.1 -227.1 -188.7 -207.8
   Current transfers, netb28.6 37.6 41.2 76.0 82.5 81.2
Capital account balance 175.7 434.4 671.9 403.9 224.7 679.0
   Direct investment, net 57.7 172.8 154.0 156.6 136.9 159.8
   Portfolio investmentsc83.4 29.3 158.2 192.3 276.4 174.0
   Other medium- and long-term capital 90.9 447.6 886.4 215.9 10.4 148.1
   Other short-term capital -56.3 -215.3 -526.7 -160.9 -199.0 196.6
Errors and omissionsd60.1 101.6 4.7 18.0 152.6 -27.6
Gold valuation adjustment 32.9 30.7 0.0 0.0 0.0 0.0
Memorandum items:
Foreign exchange reserves 946.8 1,201.8 1,429.6 1,767.9 1,875.1 2,065.8
External debt/GDP (%) 20.5 17.3 17.9 16.8 15.1 13.8
Current account/GDP (%) -1.0 -2.6 -2.7 -1.2 -1.2 -1.6
Debt service ratio/exports of goods and services 18.3 19.5 15.2 23.5 22.1 15.6
Exchange rate  pesos per US$ (period avg.) 3.0 3.9 5.1 6.3 8.0 9.5
Nominal effective exchange rate (1990=100) 78.1 98.4 128.3 107.2 88.6 78.8
Real effective exchange rate (1990=100) 123.0 144.7 153.0 157.2 160.4 168.5
a Preliminary data.
b Current transfers consist of transactions without a quid pro quo, many of which are gifts.
c Includes bonds, commercial paper and notes.
d A residual item which is periodically revised as additional information regarding the current and capital accounts becomes
available.  Certain amounts recorded under "errors and omissions"  in 1997 are expected to be reclassified as positive balances
under the capital account.
Source: Data provided by the Uruguayan authorities;  World Bank, World Debt Tables (1998).
22. The capital account balance has been positive since 1992.  Net foreign direct investment and
portfolio investment showed slight fluctuations, but were positive throughout the period, reaching
some US$330 million in 1997.  Foreign direct investment (FDI) in Uruguay has been traditionallydirected towards the construction, tourism and banking sectors.  The Government believes that
Argentina and Brazil are the main sources of FDI; however since foreign investors generally are not
required to register investments, there are no reliable data to determine origin or destiny of FDI
(Chapter II).  Net medium- and long-term capital inflows have been positive throughout the period
despite some fluctuations, while there has been an outflow of short-term capital, with the exceptionof 1997.  The accumulation of foreign reserves has been substantial during this period.
(3) D
EVELOPMENTS IN TRADE
23. Since 1992, Uruguay has experienced solid growth in trade, except for 1995 (Table I.3).  The
volume and pattern of Uruguay's trade has been affected by the transformation of the regional market
through MERCOSUR;  and by the real appreciation of the Uruguayan peso vis-à-vis  the U.S. dollarWT/TPR/S/50 Trade Policies Review
Page 12
which has lead to a loss in competitiveness, particularly outside the region.  Thus, there was an
important shift in the direction of trade towards the region in the period 1992-1996 and some variation
in its composition.
24. The overall growth in exports, despite the real appreciation of the currency, may be attributed
to:  (i) the deregulation of the economy and tax reductions which have reduced production costs;
(ii) productivity gains in manufacturing and agriculture;  (iii) the reduction in import duties whichhave helped reduce the anti-export bias of the trade regime;  and (iv) the amelioration in economic
conditions in Brazil and Argentina.
(i) Composition of merchandise trade
25. Uruguay exports mainly primary products:  agricultural raw materials, food and
agro-industrial products whose share in total exports increased from 58.3% to 62.1% during theperiod under study (1992-96).  This indicates an increasing specialization in those products where
Uruguay has strong comparative advantage:  bovi ne meat, dairy produces and rice (Chart I.6 and
Table AI.1).  Exports of manufactured goods decline d, with textiles and clothing showing the biggest
drop from 15.9% to 9.5% as a percentage of total exports.  This is a sector which has been isolated
from the world market by heavy domestic protection, making it increasingly uncompetitive abroadand unable to fill its quotas in the United States and Canada (Chapters III and IV).
26. The composition of imports has remained more or less stable, with manufactured goods
amounting to some 74% of total imports in 1996;  machinery and transport equipment are the most
important items (Table AI.2).  It may be expected that, as the process of integration deepens, unless it
becomes more integrated into MERCOSUR production processes, Uruguay will further specialize in a
few export products, while imports will increase and diversify.  This would also be consistent with
Uruguay's role as a net provider of services to other countries in the region.
(ii) Direction of merchandise trade
27. The process of integration together with the Uruguay's loss of competitiveness vis-à-vis  third
partners has resulted in an increase and concentra tion of trade with MERCOSUR partners.  Exports to
MERCOSUR increased from 33.6% to 51.3% of total expo rts, while trade with the rest of the world
declined (Chart I.7 and Table AI.3).  Brazil has become Uruguay's major export market, purchasing38% of Uruguay's exports.  Argentina's importance as a market has diminished slightly, but Uruguay's
services sector (especially tourism), is still highly dependent on Argentina.
28. Since 1992, there has not been a substantial change in the origin of Uruguayan imports.
Imports from MERCOSUR have increased but not to the same degree as exports within the group
(Table AI.4).  Imports from other markets, in part icular, the European Union and the United States,
also increased.
29. Chart I.8 shows Uruguay's major exports a nd imports to and from MERCOSUR since 1992.
Throughout the period cereals have been Urugua y's major export to MERCOSUR, followed by
textiles and clothing, and chemicals.  Exports of bovine meat have also increased, becoming a major
export to the region.  In contrast, exports of transport equipment have declined considerably.  Importsfrom the region have been more stable except that th e share of fuels in the total has fallen in recent
years.Uruguay WT/TPR/S/50
Page 13
Chart I.6
Product composition of merchandise trade, 1992 and 1996
1992 1996
(a)    Ex ports
Agriculture
58.3
Agricultural 
raw material
19.6Other semi-
manufactures
11.7Textiles and
clothing
15.9
Machinery and 
transport 
equipment
3.8Food
38.7
Manu-
factures
40.8
Total exports:   US$1.6 billion Total exports:   US$2.4 billion
(b)    Im ports
Chemicals
16 0Textiles and 
clothing 
4.0
Mining
11.6Agriculture
12.1
Machinery and 
transport 
equipment
39.5Other 
manufactures
8.6
Manufactures
76.2Manufactures
73.9
Total imports:   US$2.0 billion Total imports:   US$3.3 billion
Source :  UNSD, Comtrade database (SITC Rev.1).Per cent
Other semi-
manufactures
8.1Chemicals
6.2Other 
manufactures
3.2Other  0.9
Agriculture
62.0
Agricultural 
raw material
15.2Other semi-
manufactures
13.2Textiles and
clothing
9.5
Machinery and 
transport 
equipment
4.5Food
46.8
Manu-
factures
36.3
Chemicals
5.4Other 
manufactures
3.7Mining  1.7
Chemicals
16 5Textiles and 
clothing 
4.5
Mining
12.0Agriculture
14.0
Machinery and 
transport 
equipment
32.4Other 
manufactures
10.5
Other semi-
manufactures
10.0WT/TPR/S/50 Trade Policies Review
Page 14
Chart I.7
Direction of merchandise trade, 1992 and 1996
1992 1996
(a)    Ex ports
Mercosur
33.6
East Asia
11.3Other America
9.1EU15
26.7Argentina
15.4
Total exports:   US$1.6 billion Total exports:   US$2.4 billion
(b)    Im ports
Total imports:   US$2.0 billion Total imports:   US$3.3 billion
Source :  UNSD, Comtrade database (SITC Rev.1).Per cent
United States
10.7Other
4.2
Other  
Mercosur
0.7Brazil
17.5
Other Asia
4.4Mercosur
51.3
East Asia
11.1Other America
4.9EU15
16.9Argentina
11.2
United States
5.9Other
3.4
Other  Mercosur
2.1Brazil
38.0
Other Asia 
1.7Chile
4.8
Mercosur
41.4
East Asia
14.9Other 
America
6.5EU15
16.4Argentina
17.2
United States
9.3Other
6.2
Other  
Mercosur
0.6Brazil
23.6
Other Asia
5.3Mercosur
44.0
East Asia
8.4Other 
America
6.9EU15
19.4Argentina
20.8
United States
12.2Other
6.1
Other  
Mercosur
0.8Brazil
22.4
Other Asia
3.0Uruguay WT/TPR/S/50
Page 15
020406080100
1992 93 94 95 96 1997
020406080100
1992 93 94 95 96 1997Chart I.8
Uruguay's trade with MERCOSUR by sector, 1992-97
(a)  Exports
Per cent of total exports to MERCOSUR
(b) Imports
UNSD, Comtrade database (SITC Rev.1). Source :Per cent of total imports from MERCOSURMeat Chemicals
Textiles and clothing Transport equipmentDairies
OtherCereals Wool
Machinery
Food and live animals Textiles and clothing
Transport equipment OtherFuels Chemicals
MachineryWT/TPR/S/50 Trade Policies Review
Page 16
(4) OUTLOOK
30.  Economic policy will continue to be focused on further reducing inflation to single digit
levels, increasing employment, maintaining the stability of both fiscal and external accounts, and
keeping the exchange rate in line with targeted inflation.  Further de-indexation of the economy,
together with the scheduled reduction in tariffs as Uruguay converges to the CET, should also
contribute to reducing inflation and to regaining some competitiveness outside the region.  Inaddition, to foster long-term growth, the process of structural reform should help international
competitiveness through its beneficial effects on productivity.
31. The Government is forecasting growth at 3%, but this is contingent on the economic
performance of Brazil and Argentina, the country's biggest trading partners, which account for almost
50% of its exports. Given the possibility of a slowdown in the region, in the wake of the Asian crisis,there must be some concern about spillover effects in Uruguay.  In this regard, the loss of
competitiveness in third-country markets that result s from the real appreciation of the Ur$ of recent
years would become a source of concern.