Uruguay WT/TPR/S/163/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) OVERVIEW  
1. Since Uruguay's trade policy was last reviewed in 1998, the national economy has overcome a 
serious recession, which reached its culminating point w ith the financial crisis in 2002.  After rising at 
an average rate of close to 3.5 per cent annua lly between 1990 and 1997, GDP dropped at an annual 
average rate of 0.2 per cent over the period 1998-2004.  This trend in Uruguay's GDP during the period under review was the result of a number of internal and external factors, notably economic 
difficulties in neighbouring countries, which led to mass withdrawals of bank deposits in 2002 and 
triggered a financial crisis.  The latter was accompanie d by a rise in inflation and the fiscal deficit, a 
decrease in imports and increased unemployment.  Responding to the crisis, Uruguay implemented a 
macroeconomic adjustment programme, combined with  a plan to reinforce the financial system and 
reorganize government spending.  It also turned to  debt for equity swaps and was given a stand-by 
loan by the International Monetary Fund.  It shou ld be noted that Uruguay does not appear to have 
applied trade policy measures in attempting to alleviate the crisis. 
2. From 2003 onwards, the major macroeconomic indicators improved and there was once again 
a growth trend that year in a favourable internationa l context that enabled a si zeable increase in the 
volume of exports to be achieved.  The Government  envisages steady growth for the remainder of the 
decade.  It has undertaken to pursu e its fiscal austerity policy and to control inflation, in addition to 
introducing structural reforms to enhance producti vity and improve social welfare programmes.  
Nevertheless, despite the noticeable improvement in the economic situation in recent years, in part 
because of the size of its external debt, Uruguay continu es to be vulnerable to ex ternal factors such as 
fluctuations in exchange rates a nd international interest rates. 
3. International trade in goods and services plays an important role in Uruguay.  Both imports 
and exports decreased following the 2002 crisis, but have since recove red.  Exports have made a key 
contribution to the economic recovery under way sin ce 2003.  One of the most salient features of the 
period under review has been the re orientation of exports to countries outside MERCOSUR, with the 
United States taking Brazil's place as the main d estination for Uruguay's exports.  Although Uruguay's 
trade has become more diversified in recent years, some 45 per cent of imports come from other MERCOSUR members, especially Argentina and Br azil, which to some extent reflects the 
preferential access to the Uruguayan ma rket they receive.  Foreign investment flows to Uruguay, also 
affected by the crisis, have recovered in the last few years. 
(2) M
ACROECONOMIC TRENDS  
(i) Structure and reform of the economy 
4. The sectoral breakdown of Uruguay's economy has changed during the period under review, 
reflecting the degree to which the various sectors ad justed to the economic and financial crises during 
the period, as well as changes in the international situ ation.  This has led to above-average growth in 
traditionally export-oriented sectors (agriculture a nd manufacturing) and a shar p decrease in the GDP 
share of domestic trade-oriented activities (construc tion and real estate services and other services 
(Table I.1)).  It should be noted that agriculture , including agro-industry, doubled its contribution to 
GDP between 2000 and 2004.  Services as a whole c ontinue to account for the largest share of the 
GDP. WT/TPR/S/163/Rev.1 Trade Policy Review 
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Table I.1 
Sectoral structure of GDP, 1998-2004 
(Percentage of current GDP at factor co st, including imputed bank service charges) 
 1998 1999 2000 2001 2002 2003 2004 
GDP        
Agriculture and livestock 6.8 5.5 6.0 6.0 9.0 12.6 11.3 
Fishing 0.2 0.1 0.2 0.2 0.3 0.4 0.4 
Mining and quarrying  0.3 0.3 0.3 0.3 0.2 0.2 0.2 
Manufacturing 18.4 16.7 16.9 16.3 17.5 18.6 21.1 
Electricity, gas and water 4.0 4.0 4.1 4.4 4.8 4.9 4.5 
   Electricity 3.2 3.2 3.3 3.6 3.7 4.1 3.8 
Construction 5.9 6.4 5.9 5.4 4.2 3.5 3.5 
Trade, restaurants and hotels 14.1 14.0 13.2 13.0 12.1 12.0 13.0 
Transport, storage and communications 8.1 8.8 9.1 9.1 9.2 9.7 9.6 
   Air transport 0.2 0.2 0.2 0.2 0.3 0.4 0.4 
   Maritime transport 0.8 0.8 0.8 0.8 1.0 1.5 1.2 
   Telecommunications 3.0 3.5 3.7 3.8 3.8 3.7 3.6 
Financial services and insurance 8.3 9.7 10.2 11.9 11.4 10.7 9.4 
Real estate and business servi ces 16.4 17.5 17.6 17.7 16.9 14.9 12.2 
Public services 9.3 9.6 9.7 10.2 9.8 8.6 8.1 
Miscellaneous services 10.6 11. 11.5 11.4 10.8 9.7 9.3 
Financial remuneration  2.4 4.1 4.8 5.8 6.2 4.7 2.6 
Employment        
Agriculture, forestry, hunting  3.8 3.9 4.0 4.1 4.0 4.3 4.7 
Fishing 0.1 0.1 0.1 0.2 0.2 0.2 0.2 
Mining and quarrying  0.1 0.1 0.2 0.1 0.1 0.1 0.1 
Manufacturing 15.8 16.1 14.8 14.5 13.5 13.7 14.0 
Electricity, gas and water 0.9 1.0 1.2 1.0 1.3 0.9 0.8 
Construction 8.3 7.5 8.3 8.1 7.4 6.7 6.6 
Trade, restaurants and hotels 19.8 20.2 20.1 22.3 22.0 21.8 22.5 
Transport, storage and communications 6.1 6.1 5.8 6.2 6.0 5.9 5.8 
Financial services and insurance 2.0 2.0 2.0 2.0 2.1 1.9 1.6 
Public and personnel and other serv ices 43.1 43.0 43.5 41.5 43.4 44.5 43.7 
Source : Information provided by the Central Bank of Uruguay and the National Institute of Statistics. 
 
5. There is a very large informal sector:  acco rding to information from the Social Security 
Fund, over one third of the population works in this sector.1  The authorities have indicated that, even 
though the 2002 crisis saw a large increase in th e informal sector, in 2005 many jobs were 
regularized.  According to the authorities, three fa ctors largely account for the increase in the number 
of formal jobs:  economic growth, stricter cont rols, and the revival of collective bargaining. 
6. In 1999, Uruguay's economy started to decline as a result of a combination of negative factors 
such as the devaluation of the r eal in Brazil, drought, and the persis tence of disadvantageous terms of 
trade.2  The economic crisis during the period 1999- 2001 was also associated with two outbreaks of 
foot-and-mouth disease among cattle in October 2000 a nd April 2001.  The Ministry of Livestock, 
Agriculture and Fisheries (MGAP) estimates that  in 2001 Uruguay lost US$730 million because of 
the return of foot-and-mouth disease.3  This crisis was partly resolv ed through prompt intervention by 
the authorities and the application of a conti ngency plan, followed by a compulsory vaccination 
campaign.  The effects on GDP of the return of foot-and-mouth disease were compounded in the period 2001-2002 by those of the economic crisis in Ar gentina.  The adverse effects of the Argentine 
crisis were particularly widespread because Urugua y's economy was weak at the time and there were 
                                                     
 
1 Social Security Fund (2005). 
2 IMF (2000). 
3 For more details, see http://www.mgap. gub.uy/DGSG/VIGILE_ FIEBREAFTOSA.htm. Uruguay WT/TPR/S/163/Rev.1 
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problems relating to production and taxation and in the financial sector, but also because the 
economies of the two countries are closely linked.  The financial crisis triggered in 2002 led to a 
serious economic recession and de terioration of all the major macroeconomic aggregates. 
7. In March 2002, the IMF approved a three-year stand-by loan for Uruguay amounting to 
US$781 million, increased in June 2002 to US$2,280 milli on.  In the same month, the Central Bank of 
Uruguay (BCU) announced the abolition of the exch ange-rate band.  In August 2002, the IMF 
approved a new increase in the stand-by loan  amounting to US$2,800 m illion and in June 2005 
approved a further stand-by loan of US$1,130 million for a period of three years.  In its letters of 
intention of May and September 2005,  Uruguay undertook to pursue structural reform, maintain fiscal 
and monetary discipline, lower the inflation target range, increase private investment as a percentage 
of GDP to 20 per cent and achieve a primary surplus amounting to 4 per cent of GDP as of 2007.4  In 
this connection, and in relation to this review, the authorities indicated that the major objectives of 
these measures were already part of the stabiliza tion hypotheses in the economic policies in force 
prior to signature of the agreements with the IMF and that their endorsement is indicative of 
continuity in the management of critical variables for ensuring financial and economic stability.  They 
also indicated that, with the inv estment currently being made in pulp plants (see Chapter IV(2)), it 
was planned to achieve the investment target in 2007. 
8. In August 2002, Parliament approved the La w on Strengthening the Banking System (see 
Chapter IV(6)(iii)).  The financial crisis caused a sharp fall in deposits in the Uruguayan banking 
system, a serious tightening of credit for the private sector, a drastic cut in voluntary financing for the 
State and loss of international reserve assets estimated at 19 per cent of GDP. 
9. As a result of the recession and the ensuing financial crisis, household incomes fell by 20 per 
cent between 1998 and 2002, reaching a level 7 per cen t below that of 1991.  The recession meant an 
increase in poverty and a deterioration in other social indicators, even though poverty levels remained 
low in comparison with the rest of Latin America.  The World Bank estimates that, during the period 1999-2002, poverty increased by almost 60 per cent, to a level of around 24 per cent.
5  In order to 
offset the negative effects of the 2002 financial cr isis on the standards of living, in 2005 the new 
Government also introduced a social emergency programme, the Plan de Atención Nacional a la 
Emergencia Social (PANES).  The programme cove rs education, nutrition,  employment, housing and 
health targets and introduces a monthly minimum guaranteed wage of Ur$1,363 (some US$55) for 
35,000 families.  The programme is to be implemented over two years at an estimated cost of 
US$200 million and has the financial support of the World Bank and the Inte ramerican Development 
Bank (IDB). 
(ii) Production and employment 
10. Uruguay's economic performance underwent nume rous ups and downs during the period 
1998-2005 (Table I.2).  This was due to internal and external factors acting in concert.  The internal 
factors included the outbreak of foot-and-mouth disease and the effects of the drought, which had a 
pronounced impact on exports.  The main external f actors were the financial crisis in Argentina and 
the exchange-rate and financial measures adopted by  Brazil in 1999.  During the period 1998-2004, 
the GDP fell at an average annual rate of 0.2 per cent, mainly reflecting the sharp economic downturn 
during the period 1999-2002:  the GDP fell by 7.5 per cent from 1999 to 2001 and by a further 11 per cent in 2002.  The economic downturn experienced  during this period led to an increase in the 
government deficit and a generalized  deterioration in the population's welfare:  per capita GDP in 
nominal terms shrank noticeably in United States dollar terms between 1998 and 2004. 
                                                     
 
4 IMF (2005b). 
5 World Bank (2004). WT/TPR/S/163/Rev.1 Trade Policy Review 
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Table I.2 
Basic economic indicators, 1998-2005 
 1998 1999 2000 2001 2002 2003 2004 2005a 
Current GDP (Ur$ million) 234,268 237,143 243,027 247,211 260,967 315,681 379,317 407,587 
Current GDP (US$ million) 22,371 20,914 20,087 18,561 12, 278 11,191 13,215 14,804 
Per capita GDP (US$) 6,801.8 6,332.0 6,046.0 5,554.6 3,652.7 3,310.7 3,864.9 4,354.1b
Real GDP and components, growth rates (%) 
Real GDP 4.5 -2.8 -1.4 -3.4 -11.0 2.2 12.3 6.6 
Total consumption 6.4 -1.3 -1.4 -2.1 -15.9 1.1 11.4 5.6 
   Private 4.0 0.6 -0.3 -2.9 -9.3 -4.8 2.5 6.2 
   Government 6.8 -1.5 -1.6 -2.0 -16.9 2.0 12.8 1.5 
Gross capital formation 7.3 -2.7 -3.2 -3.1 -18.3 2.8 13.3 1.3 
   Gross fixed capital formation 12.1 -9.8 -13.0 -9.1 -34.5 18.0 27.0 22.5 
   Changes in inventory 64.4 -23.4 -12.0 -6.2 -52.3 386.6 15.5 .. 
Exports of goods and services 0.3 -7.4 6.4 -9.1 -10.3 4.2 22.7 15.1 
Imports of goods and services 7.6 -5.8 0.1 -7.1 -27.9 5.8 24.5 10.9 
GDP by type of spending (% of current GDP) 
Final consumption costs 84.9 87.4 87.7 87.9 86.6 85.9 84.9 .. 
   Private consumption 72.4 73.2 74.5 74.2 73.7 74.6 74.2 .. 
   Government consumption 12.5 13.0 13.2 13.7 12.8 11.3 10.9 .. 
Gross capital formation 15.9 15.3 13.9 13.8 11.5 12.6 13.3 .. 
   Gross fixed capital formation 15.2 14.6 13.2 12.5 10.1 9.5 11.4 .. 
   Changes in inventory 0.7 0.6 0.7 1.2 1.4 3.1 1.9 .. 
Exports of goods and services 19.9 18.0 19.3 18.4 22.0 26.0 29.7 .. 
Imports of goods and services 20.6 19.3 20.9 20.0 20.0 24.5 27.9 .. 
Memorandum items         
Gross savings 14.1 12.9 11.3 10.3 13.2 10.3 11.5 .. 
Population (millions) 3.3 3.3 3.3 3.3 3.4 3.4 3.4 3.4 
Labour force (millions) 1.47 1. 48 1.50 1.51 1.52 1.54 1.55 1.56 
Unemployment rate 10.1 11.3 13.6 15.3 18.6 13.9 13.6 12.5 
GDP deflator .. .. .. 5.3 18.7 17.9 6.9 2.4 
Nominal wages (country) .. 5.2 3.1 3.6 1.4 6.5 9.1 9.6 
Real wages .. 1.0 -1.9 0.0 -19.5 -3.4 0.0 4.7 
.. Not available. 
 a First nine months;  growth rate compared with the same period the previous year. b Estimate. 
 
Note: GDP for 2005 is an estimate during the third quarter;  wages include both the govern ment and private sectors. 
Source : Information provided by the Central Bank of Uruguay and the National Institute of Statistics. 
 
11. Uruguay has managed to emerge from the recession reasonably successfully since 2003.  
GDP grew by 12 per cent in 2004 and 6.6 per cent during the first nine months of 2005.  This return to 
growth has meant an improvement in the employment  situation, allowing the Government to focus on 
its medium-term objectives of achieving a hi gher rate of growth and social progress. 
12. Domestic demand's role in GDP growth was negative during the period 1999-2002, with a 
marked downturn in private consumption and a cons iderable decrease in investment, the result of 
lower incomes.  Domestic demand was also affected  by the high interest rates and the domestic credit 
squeeze.  From 2003 onwards, domestic demand has been recovering. 
13. The decrease in investment from 1998 to 2002 can largely be explained by the marked 
increase in interest rates, economic and financial un certainty and the unfavourable trend in forecasts.  
Nevertheless, from 2003 onwards, investment started to  recover rapidly.  Despite this recovery, the 
rate of investment in Uruguay, 13.3 per cent of  GDP in 2004 (13.2 per cent in 2005), is still low 
compared with that in other developing countries, in cluding others in the region.  As indicated above, Uruguay WT/TPR/S/163/Rev.1 
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however, the Government intends to increase the investment/GDP ratio to 20 per cent in 2007 and 
expects growth in both private and government invest ment.  Investment is growing more rapidly than 
GDP, partly as a result of investment in pulp plants.  The authorities have indicated that their objective is to ensure that the increase in the investment/GDP ratio  becomes permanent and for this 
purpose it is considering introducing a series of micro economic reforms, together with changes in the 
regulatory framework, for example, new provisions concerning bankruptcy and the introduction of a 
law to protect competition (Chapter III(4)(ii)). 
14. The economic crisis in neighbouring countries had a marked impact on Uruguay's exports.  
The decrease in exports, however, was confined to the period 2001-2002, after which they started to 
increase, assisted by the depreciation of the Urugua yan peso.  Exports increased their share of GDP 
from 19.9 per cent in 1998 to 29.7 per cent in 2004 (30.2 per cent in 2005).  A decrease in consumption led to a fall in imports up to 2002, but this trend was subsequently reversed when 
domestic demand recovered.  Con sequently, total exports and imports of goods and services rose from 
40.5 per cent of GDP in 1998 to 57.6 per cent in 2004. 
15. As a result of the economic crisis, the une mployment rate rose sharply between 1998 and 
2002, when it exceeded 18 per cent.  Since then, however, as the economy is once again growing, 
employment has been rising and the unemployment rate was down to 12.5 per cent in October 2005.  Wages in real terms decreased by close to 20 per cent in 2002 and 3.4 per cent in 2003;  the decline 
bottomed out in 2004 and in 2005 there was a slight recovery in real wages. 
(iii) Fiscal policy 
16. The Ministry of the Economy and Finance is in charge of Uruguay's fiscal policy.  Achieving 
and maintaining a fiscal balance are key elements of  the Uruguayan authorities' strategy for continued 
macroeconomic stability, particularly in vi ew of the high level of government debt.
6  Spending 
discipline should allow a primary surplus to be gene rated, thereby allowing the high interest payments 
on the debt to be met (Table I.3).  In this connec tion, the Government has recently set targets for the 
primary surplus;  these were 3.5 per cent of GDP in  2005, 3.7 per cent in 2006, and 4 per cent in 2007 
and 2008. 
Table I.3 
Non-financial public sector (NFPS) fina ncial accounts, fiscal years 1998-2005 
(Percentage of GDP and US$) 
 1998 1999 2000 2001 2002 2003 2004 2005a 
NFPS income (% of GDP) 30.5 30.4 30.8 31.8 30.9 30.7 29.8 29.8 
 Taxes 17.4 17.0 16.7 17.2 17.5 18.5 .. .. 
 Non-taxes  13.1 13.4 14.1 14.6 13.4 12.2 .. .. 
   Operating results State-owned ente rprises 2.9 2.9 2.7 3.7 3.5 3.7 2.8 1.8 
 NFPS outgoings (% of GDP) 30.9 33.9 34.3 35.6 34.8 33.6 30.8 30.7 
    Primary outgoings 29.6 32.1 31.9 32.7 30.4 27.6 25.6 25.9 
       Capital outgoings 4.1 4.2 3.6 3.8 2.7 2.8 2.6 2.4 
    Interest payments  1.3 1.8 2.4 2.9 4.4 5.9 5.2 4.9 
Public sector balance (% of GDP)b -0.9 -3.7 -3.9 -4.1 -4.2 -3.2 -2.0 -1.6 
Non-financial public sector balance -0.5 -3.5 -3.5 -3.8 -3.9 -2.5 -1.8 -1.2 
    Central Government and social security balance -1.7 -4.6 -4.5 -5.5 -6.3 -5.0 -3.6 -3.0 
       Central Government balance  5.7 3.9 4.2 3.4 3.0 4.1 .. .. 
Table I.3 (cont'd)  
                                                      
6 IMF (2005c). WT/TPR/S/163/Rev.1 Trade Policy Review 
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 1998 1999 2000 2001 2002 2003 2004 2005a 
      Social security balance  -7.4 -8.5 -8.7 -8.9 -9.3 -9.1 .. .. 
    Local government balance 0.0 -0.5 -0.3 -0.1 -0.6 -0.3 0.0 0.0 
    State-owned enterprises bala nce 1.2 1.2 1.1 1.9 2.4 2.3 2.6 1.6 
NFPS operating balance 3.6 0.5 0.1 0.0 -1.2 0.3 4.1 3.5 
Primary balance (excluding interest) 0.4 -1.5 -1.3 -1.2 0.3 2.9 4.0 3.7 
Total government debt (US$ million) .. 8,526 9, 132 10,072 11,386 12, 163 13,329 13,518 
    Central Government  .. 5,347 6,202 7,012 9,467 10,160 10,741 10,842 
    Other .. 3,179 2,930 3,060 1,919 2,003 2,588 2,676 
Total government debt (% of GDP) .. 40.8 45.5 54.3 92.7 108.7 100.9 91.3 
.. Not available. 
 a First half of 2005, annual basis.  Data for 2004 and 2005 do not include go vernment departments. 
b Including the BCU. 
 Note: There may be slight discrepancies in the totals as they have been rounded off. 
 
Source : Information provided by the Uruguayan authorities;  information from the BCU online.  Available at:  
www.bcu.gub.uy;  and information onlin e from the Ministry of the Economy  and Finance.  Available at:  
http://www.mef.gub.uy 
 
17. The fiscal situation worsened significantly between 1998 and 2002, chiefly as a result of 
increased outgoings, but started to recover from 2003 onwards.  The improvement in the government 
finance situation was the result of spending cuts on the one hand and temporary increases in some taxes on the other, as well as the return to economic  growth with the ensuing rise in income.  As a 
large part of government debt is in foreign currenc y, government finance has also benefited from the 
real appreciation in the exchange rate since la te 2004.  The measures adopted to slow down the 
expansion in spending include the following:  hiring  cutbacks in the public sector;  the deindexing of 
public sector wages;  limits set on discretionary government spending on goods and services;  and 
reduced capital expenditure. 
18. One of the largest components of the deficit h as been, and still is, interest payments on the 
government debt.  Consequently, the other public sector  accounts have to show a large surplus.  This 
inflicts a recessionary bias on fiscal policy, for example by limiting government investment, which 
has been considerably tightened in recent years.  In this conn ection, noting that government 
investment in 2005 was some 2.5 per cent of GDP co mpared with 4.3 per cent in 1999, the authorities 
have indicated that the aim is to raise the level to 3.4 per cent of GDP as of 2007. 
19. The primary balance in State-owned enterpri ses as a whole showed a surplus during the 
period under review.  It was not, however, sufficient to cover the rising interest payments on the debt, 
which amounted to 5.9 per cent of GDP in 2004 (Table  I.3), giving an overall deficit of 2 per cent of 
GDP and a deficit of 1.8 per cent of GDP in the non-financial public sector as a whole.  During the first half of 2005, the fiscal situation was similar to  that in 2004, with a primary balance of 3.7 per 
cent of GDP and an overall public sector deficit of 1.6 per cent. 
20. A five-year budget was put before the Uruguaya n Parliament in August and adopted in 
December 2005.  It includes measures to reduce the external debt and is  consistent with the financial 
programme drawn up by the Government in order to  achieve the surplus target.  The programme is 
based on four pillars that complement the structur al reforms already introduced:  (i) comprehensive 
tax reform;  (ii) modernization of tax administration;   (iii) redefinition of the budgetary process;  and 
(iv) pension fund reform.  The aim of the tax refo rm is to lessen the number of taxes by abolishing Uruguay WT/TPR/S/163/Rev.1 
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some, to lower the levels of some indirect taxes and to introduce personal income  tax.  It is also hoped 
to improve coordination among the fiscal authorities. 
21. During the period under review, government debt as a percentage of GDP increased from 
40.8 per cent in 1999 to 108.7 per cent in 2003, but th en started to fall in 2004.  This increase was to 
some extent the result of the depreciation of the peso during the period 2001-2003, which increased 
the value of the external debt, as well as the new loan s contracted chiefly to overcome the crisis.  In 
the second half of 2004 and then in 2005, as the peso appreciated and real GDP grew, the government debt/GDP ratio fell to an estimated 91.3 per cent in June 2005.  The majority of the debt increase was 
attributable to the Central Government and reflect s in part the debts contracted with multilateral 
organizations in order to overcome the 2002 fi nancial crisis;  between 2001 and 2003, the 
indebtedness of the Central Government increased by almost 50 per cent. 
(iv) Monetary and exchange policy 
22. The Central Bank of Uruguay (BCU) is respons ible for conducting Uruguay's monetary and 
exchange policy.  Uruguay is currently reforming th e BCU to make it more independent, to give it a 
more important role in supervis ing the financial system, and to remove the linkage between the 
appointment of the Bank's governors and the electoral cycle.  The goal is to establish a Comité de 
Coordinación Macroeconómica (Macroeconomic Coordination Committee) to determine the monetary and exchange regime and inflation targets. 
23. Since mid-2002, the BCU has been implementing a monetary policy regime that has shifted 
from a system based on monetary aggregate targ eting to one whose ultimate objective is price 
stability, though it is not an inflation target regime.  In a first phase, which lasted throughout 2003, the 
BCU applied a monetary policy based on strict comp liance with monetary base targets in order to 
lessen the inflationary expectations of a market that had just gone th rough a profound financial crisis.  
Since 2004, monetary policy has given priority to the trend in inflation:  at the beginning of each 
quarter, the BCU announces a target range for price va riations and determines that the monetary base 
path, which is its intermediate operational target, will be situated within a range that is also 
announced.
7  After making the announcements, the BCU m onitors the performance of the monetary 
base in comparison with the path announced and of fsets undesired variations in the amount of base 
money by using the instruments at its disposal, for example, bills issued in national currency and the 
buying and selling of foreign currency.8 
24. In 2002, following the financial crisis, there was a large increase in interest rates caused partly 
by the trend in forecasts, but it did not last long.  In 2003, there was a marked fall in interest rates 
(Table I.4).  The monetary policy applied since the end of 2004 has followed an expansionist 
approach.  In each quarter of 2005, the inflation target for the following 12 months was fixed at 
between 5.5 and 7.5 per cent.  The target for 2006 is 4.5-6.5 per cent. 
Table I.4 
Main monetary indicators, 1999-2005 
(Percentage) 
 1999 2000 2001 2002 2003 2004 2005a 
Money and credit supply (rate of variation over 12 months) 
M1 5.0 -4.2 -3.2 4.7 34.0 13.0 27.2 
M2 5.4 4.1 -0.8 -7.9 29.2 13.5 24.5 
Table I.4 (cont'd) 
                                                      
7 BCU (2005f). 
8 BCU (2005g). WT/TPR/S/163/Rev.1 Trade Policy Review 
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 1999 2000 2001 2002 2003 2004 2005a 
Total liquidity (US$) 13.5 7.2 11.6 -50.7 5.7 7.4 5.5 
M1/GDP (% of GDP) 5.7 6.0 5.7 5.6 6.2 6.0 6.0 
Liquidity/GDP (% of GDP) 60.0 67.0 80.9 60.3 69.9 64.0 51.0 
Interest rates        
Average active interest rate, Ur$ (end of period) 50.8 45.3 65.1 138.1 43.0 34.8 27.8 
Average passive interest rate, Ur$ (end of period) 17.0 17.0 31.3 62.1 7.3 4.4 2.0 
National currency interest margin (end of period) 32.2 28.3 34.2 76.0 35.7 34.4 25.8 
Average active interest rate, US$ (end of period) 12.3 12.3 10.4 12.0 8.3 7.0 7.2 
Average passive interest rate, US$ (end of period) 5.1 5.5 2.6 3.9 1.2 1.1 1.5 
Interest margin, US$ (end of period) 7.2 6.8 7.8 8.1 7.1 5.9 5.7 
Inflation (percentage variation at end of period)         
Consumer price index (CPI) 4.2 5.1 3.6 25.9 10.2 7.6 4.1 
Producer price index domestic products (IPPN)  -0.3 9.5 3.8 64.6 20.5 5.1 -4.6 
Exchange rate        
Exchange rate (average for period:  Ur$/US$) 11.6 12.4 14.1 27.2 29.3 26.6 24.3 
Exchange rate variation (December-December) 7.6 7.3 13.1 93.5 7.3 -9.2 -18.5 
Real effective exchange rate variationb (December-December)  -9.3 -0.7 6.0 13.8 21.7 -7.6 -8.9 
Real effective exchange rate to the Arg$ (Dece mber-December) .. 0.5 7.3 -37.7 18.9 -10.7 -6.1 
Real effective exchange rate to the UR$ (Dece mber-December) .. -1.5 -2.2 12.0 27.2 -3.4 5.9 
.. Not available. 
 
a October/October, except exchange rate, which is December/December. b A minus sign denotes appreciation;   a plus sign, depreciation. 
 
Note: M1 corresponds to the money in circulation plus demand depos its in national currency;  M2 is M1 plus savings deposits in 
national currency;  total liquidity corresponds to M2 plus deposits in foreign currency. 
 
Source : Central Bank of Uruguay, Boletín de Política Moneta ria, several issues;  and information online:  
www.bcu.gob.uy. 
 
25. The gap between the active and passive inter est rates widened considerably during the 
financial crisis;  since then it has narrowed, but at a level of 25.9 per cent in mid-2005 for transactions 
in national currency and 5.7 per cent for foreign cu rrency transactions, it still remains high.  This 
could be a sign of continued inefficiency in the banking system, even after the reorganization that 
followed the financial crisis (Chapter IV(6)(iii)). 
26. One feature of Uruguay's financial system that  has not changed since the 2002 crisis is the 
high level of dollarization of depos its, even though the authorities ha ve indicated that in 2005 there 
was a certain reversal of this trend towards dolla rization.  Nevertheless, in June 2005, some 90 per 
cent of deposits were still in foreign currency;  so me 70 per cent of the total were foreign currency 
deposits by residents and 20 per cent by non-resident s.  The credit/GDP ratio was 30 per cent in 2005, 
similar to that prior to the economic crisis in 1998, but markedly lower than that immediately prior to 
the 2002 financial crisis, when it was 60 per cent.9 
27. Following the 2002 financial crisis, there was a steep rise in inflation in Uruguay, with an 
average increase of 25.9 in the consumer price index (CPI) that year.  The application of a stringent monetary policy and the adoption of measures to ov ercome the financial crisis managed to slow down 
considerably the pace of price increases in  2004 and 2005.  The result for 2005 was below the 
fluctuation range fixed for that year, of 5.5 to 7.5 per cent, and allowed the BCU to lower its inflation 
target for 2006 to a range of 5 to 7 per cent (Table I. 3).  It is the BCU's intention to lower the inflation 
target to 3.5 per cent annually in 2008.
10  The policy of monitoring and compensating the monetary 
                                                      
9 BCU (2005h). 
10 IMF (2005a). Uruguay WT/TPR/S/163/Rev.1 
 Page 9 
 
 
base in order to achieve the inflation targets set is considered by economists at the BCU to be the best 
tool available for controlling inflation.11 
28. Between November 1992 and June  2002, Uruguay maintained a crawling peg exchange-rate 
system under which the BCU periodically announced its buying and selling intervention rates.  This 
exchange mechanism was abandoned in June 2002 when, faced with the massive withdrawals of 
foreign currency funds in Uruguayan banks, it became  unsustainable.  As of that date, a floating 
exchange rate regime was adopted .  After a substantial devaluati on during the 2002 financial crisis, 
the Uruguayan peso has been revalued in nominal te rms and in real effective terms.  Nevertheless, 
despite having regained some ground, in Octobe r 2005, the real effectiv e exchange rate had 
depreciated by 23 per cent compared with its January 2000 level.12 
(v) Balance of payments 
29. Uruguay's balance-of-payments current account tr aditionally shows a deficit;  in recent years, 
the amount of the deficit has remained modest, below 1 per cent of GDP in 2003 and 2004 and slightly above this figure during the first half of 2 005 (Table I.5).  The aut horities consider that the 
decrease in the current account deficit in recent year s is mainly attributable to the improvement in 
government finance.
13  The difference in the speed at which deficits are corrected is related to 
performance in the private sector.  The latter has tende d to adjust its spending following the important 
adjustment made after the 2002 crisis, whose eff ect was to increase the current account deficit. 
Table I.5 
Balance of payments, 1998-2005 
(US$ million) 
 1998 1999 2000 2001 2002 2003 2004 2005a 
I. Current account -461.0 -502.2 - 566.3 -497.6 381.9 - 55.6 -97. 6 -218.2 
A. Trade account -410.0 -518.5 -533.1 -459.5 201.5 350.1 335.3 101.1 
Exports 4,061.0 3,478.1 3,659.6 3,262.0 2,693.4 3,084.2 4,008.1 3,459.9 
 Goods (f.o.b.) 2,829.0 2,290.6 2,383.8 2,139.5 1,922.1 2,281.2 3,021.3 2,596.7 
 Services 1,232.0 1,187.4 1,275.8 1,122.5 771.3 803.0 986.8 863.1 
Imports 4,471.0 3,996.6 4,192.7 3,721.5 2,491.9 2,734.1 3,672.8 3,358.8 
 Goods (f.o.b.) 3,601.0 3,186.1 3,311.1 2,914.8 1,873.8 2,097.8 2,990.3 2,724.4 
 Services 870.0 810.4 881.6 806.7 618.1 636.3 682.5 634.4 
Balance in goods -772.0 -895.5 -927.3 -775.3 48.3 -183.4 31.0 -127.7 
Balance in services 362.0 377.0 394.2 315.8 153.2 166.7 304.3 228.7 
B. Income -88.0 -33.7 -60.7 -67.8 108.6 -488.4 -521.6 -386.8 
   Loans 608.0 762.5 781.5 832.8 453.1 241.9 362.7 414.0 
       Interest 608.0 761.7 780.2 832.8 453.1 241.9 362.7 414.0 
       Profits 0.0 0.8 1.3 0.0 0.0 0.0 0.0 0.0 
   Liabilities 696.0 796.2 842. 2 900.7 344.4 730. 3 884.3 800.8 
       Interest 637.6 728.2 752.9 798.3 659.7 621.9 753.9 693.5 
       Profits 58.4 68.0 89.3 102.4 -315.3 108.4 130.4 107.3 
C. Current transfers  37.0 50. 0 27.5 29.7 71.8 82.7 88.7 67.5 
   Credit  53.0 55.0 48.0 48.0 83.7 95.0 97.4 79.0 
   Debit 16.0 5.0 20.5 18.3 11.9 12.3 8.7 11.5 
II. Capital and financial account 1,042.3 362.3 771.6 490.1 -280.4 426.3 123.1 41.9 
A. Capital transfers 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 
Table I.5 (cont'd) 
                                                      
11 Aboal, Diego, et al (2003). 
12 See BCU statistics on the real exchange ra te at:  http://www/bcu/ gub.uy/autoriza/peeesi/ 
indicecambioreal/ eesi04d1005.pdf. 
13 BCU (2005e). WT/TPR/S/163/Rev.1 Trade Policy Review 
Page 10 
 
 
 1998 1999 2000 2001 2002 2003 2004 2005a 
B. Direct investment 154.8 238.3 274.1 290.6 180.0 401.3 337.4 355.3 
       Abroad 0 3.0 0.6 -6.2 -13.7 -15.1 -11.2 -7.3 
       In Uruguay  154.8 235.3 273.5 296.8 193.7 416.4 348.5 362.6 
C. Portfolio investment 309.9 -50.1 191.4 507.7 328.6 -311.0 -415.5 326.6 
D. Other investment 577.6 174.2 306.2 -308.2 -789.0 336.0 201.3 383.6 
   Assets -409.9 303.6 -690.3 -2,275.3 1,781.3 -1,254.9 -251.6 -57.0 
       Trade credits -4.8 0.4 -8.9 27.6 7.0 -1.8 0.0 -639.9 
       Loans -525.7 119.5 113.2 -1,173.3 275.7 -9.7 20.4 -1,775.8 
       Money and deposits 104.9 195.4 -850.9 -715.1 1,785.1 -574.5 -296.2 -339.9 
       Other assets 15.7 -11.6 56.4 -414.5 -286.5 -669.0 24.3 -1,435.9 
   Liabilities 987.5 -129.5 996.4 1,967.0 -2,570.2 1,590.9 452.9 0.0 
       Public sector 467.7 76.0 75.4 548.7 1,674.2 598.6 57.8 23.0 
       Private sector 519.8 -205.4 921.0 1,418.3 -4,244.4 992.3 395.1 -422.3 
III. Errors and omissions -60.0 151.1 17.0 285.0 -2,429.6 1,009.5 428.7 258.7 
IV. Variation in BCU reserves -521.3 -11.2 -222.3 -277.5 2,328.0 -1,380.2 -454.3 -82.3 
Memorandum items:           
Gross official reserves (US$ milli on) 2,589 2,500 2,823 3, 100 772 2,087 2,512 2,525 
Current account/GDP (percentage) -2.1 -2.4 -2.8 -2.7 3.1 -0.5 -0.7 -1.5 
Capital account/GDP (percentage) 4.6 1.7 3.8 2.6 -2.3 3.8 0.9 0.3 
Gross external debt (US$ million)  8,844 8,261 8,895 8,937 10,548 11,013 11,593 11,217 
Public external debt/GDP 
(percentage)  34.9 27.0 30.3 31.4 67.6 85.4 77.3 67.1 
External debt servicing/exports of 
goods and services 15.2 36.5 36.1 43.4 55.0 52.9 42.8 45.1 
a First three quarters of 2005. 
Source : BCU. 
30. Since 2002, the goods and services trade balance has shown a surplus.  Within this overall 
balance, the trade balance for goods has traditionally  shown a deficit, partly because of Uruguayan 
industry's dependence on imported inputs.  Neverthel ess, after the 2002 crisis, this situation changed, 
with surpluses (2002 and 2004) alternating with m odest deficits (2003 and 2005).  Exports have 
benefited from the adoption of a flexible exchange -rate mechanism, the upward trend in external 
demand, and the increase in international prices for raw materials, whereas imports, although they 
have recovered, have not yet returned to the leve ls prevailing before the crisis.  Nonetheless, the 
recent appreciation of the peso in real terms and th e upturn in domestic demand led to a large increase 
in imports in 2004 and 2005.  In Uruguay, th e services balance has traditionally had a sizeable 
surplus.  Although it has been affected by the economi c and financial crisis in the region, this surplus 
has been growing since 2003. 
31. There has been a surplus in the capital account since 1998, with the exception of a brief 
interval during the 2002 financial cr isis.  Net foreign direct investme nt fell sharply during the crisis, 
but has been recovering since 2003.  In 2002, th ere was also an outflow of short-term capital 
amounting to some US$2,400 million, which is reflect ed under the heading "Errors and omissions";  
from 2003 onwards, however, there was once agai n a net inflow of short-term capital.14  G r o s s  
international reserves, which fell dramatically durin g the financial crisis, started to recover in 2003 
and by 2005 were at their 1999 levels. 
                                                      
14 With the exception of the first half of 2005, when the financial account showed a net outflow of 
capital amounting to US$204 million, mainly because of the cancellation of Brady b onds by the Government.  
BCU (2005e). Uruguay WT/TPR/S/163/Rev.1 
 Page 11 
 
 
32. Uruguay's total external debt increased up to 2004, but then fell slightly during the first half of 
2005.  The external public debt/GDP ratio incr eased from 30.3 per cent in 2000 to 85.4 per cent in 
2003, reflecting the higher external debt and the depreciation of the peso, as well as the resulting 
decrease in the nominal value of GDP in United St ates dollar terms, but it subsequently narrowed.  
Furthermore, the notable growth in exports enable d the debt servicing/exports ratio to increase more 
modestly, from 36.1 per cent in 2000 to 52.9 per cen t in 2003, but then falling to 42.8 per cent in 
2004.  The authorities stressed that Uruguay never failed at any time during the period under review 
to meet its external commitments, always seeking negotiated debt relief formulas that did not mean halting debt service payments or prejudicing those saving or investing in Uruguayan securities. 
(3) T
RADE AND INVESTMENT FLOWS  
(i) Trend in trade in goods 
33. The composition and direction of Uruguay's trade in goods can be seen in Tables AI.1 to AI.4, 
drawn up on the basis of information to be foun d in the United Nations Comtrade database.  The 
period 1998-2002 was characterized by a marked decrease in Uruguay's trade both in exports and imports.  Exports started to recover in 2003 and c ontinued their upward trend in 2004.  Because of the 
upturns in 2003 and 2004, on average, between 1 998 and 2004, exports rose at an annual rate of 
0.9 per cent.  According to Comtrade data, they  amounted to US$2,900 million in 2004 (Tables AI.1 
and AI.3).  Imports fell at an annual average rate  of 3.3 per cent over the period 1998 2004, but also 
started to rise in 2003 and amounted to a c.i.f.  total of US$3,119 million in 2004 (Tables AI.2 
and AI.4). 
(a) Breakdown of trade in goods 
34. Uruguay mainly exports commodities:  agricultura l raw materials, food and agro-industrial 
products, whose share of total exports increased from 60.8 per cent to 68.6 per cent between 1998 and 
2004 (Table AI.1).  Food accounted for 54 per cent of exports in 2004, with bovine meat and rice 
being the principal exports.  The increase in exports  of bovine meat, in particular, was particularly 
dynamic during the period, increasing at an average annual rate of 14 per cent.  This trend partly 
reflects growing specialization in those products for which Uruguay has a strong comparative 
advantage. 
35. The share of manufactures in total exports, on the other hand, fell sharply during the period 
under review:  after reaching a peak of almost 42 per cent in 2001, manufactures accounted for only 
30.5 per cent of total exports in 2004.  The decrease  was especially important in the case of machinery 
and transport equipment, which fell at an annual aver age rate of 16 per cent, while exports of textiles 
and clothing decreased at an annual average ra te of 9 per cent.  These figures show that the 
depreciation of the peso up to 2003 did not  suffice to halt the downward trend in exports. 
36. As far as imports are concerned, there was a sharp drop in manufactures' share of total 
imports, amounting to some 17 percentage points, between 1998 and 2004.  Despite this decrease, 
however, manufactures were Uruguay's major import  in 2004 accounting for 62 per cent of total 
imports.  Chemicals and machinery and equipment are the two main subsectors.  They showed 
different trends over the period:  whereas imports of chemicals increased their share of total imports, the share of machinery and equipment lost ground (Table AI.2).  There w as also an increase in the 
value of petroleum imports, mainly caused by the impact of higher prices. WT/TPR/S/163/Rev.1 Trade Policy Review 
Page 12 
 
 
(b) Direction of trade in goods 
37. During the period 1998-2004, trade with other MERCOSUR members fell sharply.  This was 
mainly the result of the fall in Uruguayan exports  to other MERCOSUR countries as imports from 
MERCOSUR retained their share of total impor ts (around 44 per cent).  Uruguayan exports to 
MERCOSUR, on the other hand, lost some 50 per cen t of their market share, accounting for barely 
26 per cent of total exports in 2004 (Table AI.3).  One of the most noticeable features of the period under review is that exports switched to countri es outside MERCOSUR. Brazil and Argentina, which 
were the main destinations for Uruguay's exports in 1998, with 33.8 and 18.5 per cent of total exports 
respectively, accounted for only 16.5 and 7.6 per ce nt respectively in 2004.  Exports to Argentina 
have suffered the effects of a real exchange rate  unfavourable to Uruguay (Table I.4).  Even though 
the exchange rate for exports to Brazil has been fa vourable to Uruguay in recent years, they have been 
affected by lower demand for certain products and by the fact that the offer was switching to third 
markets. 
38. During the period 1998-2004, there was a significan t increase in the share of the United States 
and the latter became the major d estination for Uruguayan exports, taking 21 per cent of total exports 
in 2004 compared with 6 per cent in 1998.  The United States has beco me an important destination for 
exports of Uruguayan meat. 
39. The global breakdown of imports by region shows a slight decrease in the share of imports 
from the American continent, which accounted for 55 per cent of the total in 2004, some five 
percentage points less than in 1998 (Table AI.4).   Argentina and Brazil are still the main suppliers, 
together supplying 40 per cent of imports.  Wester n Europe's share declined.  There was a rapid 
increase in imports from China, at an average rate of 14 per cent annually between 1998 and 2004 and 
in the latter year they accounted for 5.5 per cent of imports. 
(ii) Trade in services 
40. Uruguay has traditionally had a surplus in trade in  services.  Exports of services were affected 
by the 2002 financial crisis, but have since recove red, even though in 2004 they were still below their 
2000 levels.  The most important headings are trav el and transport, which represent over 80 per cent 
of exports of services and almost three quarters of imports (Table I.6).  Other important services traded include financial and telecommunications services. 
Table I.6 
Trade in services, 1998-2004 
(US$ million) 
 1998 1999 2000 2001 2002 2003 2004 
Balance 362.0 377.0 394.2 315.8 153.2 166.7 304.3 
Exports 1,232.0 1,187.4 1,275.8 1,122.5 771.3 803.0 986.8 
      Transport 76.0 262.8 374.3 312.4 265.1 258.9 334.3 
      Travel 694.9 704.2 712.8 610.5 350.9 344.7 493.9 
      Other services 461.1 220.4 188.7 199.6 155.3 199.4 158.6 
Imports 870.0 810.4 881.6 806.7 618.1 636.3 682.5 
      Transport 166.0 317.7 399.5 354.9 259.8 264.6 293.5 
      Travel 265.0 280.4 281.4 257.0 177.6 168.8 193.6 
      Other services 439.0 212.4 200.7 194.8 180.7 202.9 195.4 
Source : BCU. 
 Uruguay WT/TPR/S/163/Rev.1 
 Page 13 
 
 
(iii) Foreign investment 
41. Uruguay is a net recipient of foreign direct investment (FDI) flows.  Between 1999 and the 
first nine months of 2005, net FDI flows amounted  to a total of US$2,077 million.  After having 
recorded satisfactory results at the end of th e 1990s, FDI flows to Uruguay decreased sharply as a 
result of the 2002 financial crisis, when there were  also outflows of other non FDI-related capital.  
FDI flows started to climb again in 2003 (Table I. 4), although the foreign investment situation in 
Uruguay in 2004 was still below that recorded prior to  the crisis (Table I.7).  The authorities have 
indicated that this is to a large extent attributab le to the depreciation in the peso compared to the 
United States dollar, the accounting uni t used to calculate the position. 
Table I.7 
Foreign investment position, 2001-2004 
(US$ million) 
2001 2002 2003 2004
Direct investment in Uruguay  2,406.2 1,402.5 1,799.6 2,148.1
Direct investment abroad  132.0 108.0 111.6 122.8
Portfolio investment in Uruguay 3,150.7 2,433.9 2,738.9 4,308.8
Portfolio investment abroad 1,203.4 999.3 1,753.8 2,438.6
Source : BCU. 
 
42. The following are the leading investors in Ur uguay:  Argentina, Brazil, France, Germany, 
Mexico, the Netherlands, Spain, the United Kingdom a nd the United States, in areas such as financial 
and telecommunications services, but also in manufac turing, agro-industry, hotels and restaurants and 
trade. 
(4) OUTLOOK  
43. The Uruguayan authorities forecast a GDP growth rate of 4 per cent in 2006 and 3 to 4 per 
cent over the period 2007-2010, in accordance with the programme agreed in connection with the 
request for a new IMF stand-by loan in 2005.15  This growth will be accompanied by a policy to 
control inflation.  The authorities have undertaken to  lower the overall fiscal deficit to less than 1 per 
cent of GDP as of 2007, and for this purpose they ha ve fixed as a target a primary surplus equivalent 
to 4 per cent of GDP each year as of 2007. 
 
                                                      
15 IMF (2005c).