Uruguay’s Election a Choice Between Two Models for Economic Growth.
By Eric Farnsworth, Oct. 20, 2014, Briefing
Supporters of presidential candidate Tabare Vazquez during a rally in Montevideo, Uruguay, Oct. 12, 2014 (AP photo by Matilde Campodonico).
Oct. 26 is a big day for South American democracy. Most observers will be focused on the runoff in Brazil between the incumbent, President Dilma Rousseff, the candidate of the left-center Workers Party that has been in office since 2002, and her center-right challenger, Aecio Neves, in an election battle over who offers the better path toward securing and expanding the economic gains of the middle class.
But a similar electoral scenario is playing out next door in Uruguay, where former President Tabare Vazquez of the leftish Broad Front is hoping to return to office, succeeding outgoing President Jose “Pepe” Mujica, also of the Broad Front. Uruguay only permits nonconsecutive terms for the presidency, but between the two men, the Broad Front has been in power since 2005.
The leading opposition candidate is Luis Lacalle Pou of the conservative National Party, the son of former President Luis Lacalle, who served in office in the early 1990s and is widely identified with the economic reform movement that swept Latin America during that time. Uruguay is one of the most developed and prosperous nations in Latin America, known for advanced education, a strong social security system and liberal social laws, including marijuana legalization. For the past decade, it has enjoyed a stable macroeconomic environment produced by institutional reforms, the promotion of a business-friendly investment climate and sensitivity to social needs. In 2013, The Economist even named Uruguay “Country of the Year.” But like Brazil, Uruguay’s economy has slowed in recent years, although not as rapidly, with growth projected at below 3 percent this year and picking up slightly to 3 percent in 2015.
Uruguay’s voters are unlikely to give a majority to either of the two leading candidates on Oct. 26, ensuring a runoff later in November. At that point, the challenge for both Vazquez and Lacalle Pou will be to attract the supporters of the candidate currently polling a distant third, Pedro Bordaberry of the center-right Colorado Party. The projected results of a potential runoff between Vazquez and Lacalle Pou are within the margin of error at this point. Observers can therefore anticipate a spike in negative campaigning, as both sides seek to undermine each other’s claims to have the better policies for economic growth. In some measure, it will also be a fight over legacy, both in terms of the sustainability of the economic policies of the Broad Front, as well as the model pursued during the 1990s by Lacalle Pou’s father, and how closely to it the son might seek to hew.
At stake in Uruguay is whether the economic aspirations of a growing middle class can be realized effectively, even during a period of slowing growth and the softening commodities cycle, which has traditionally sustained regional economies. There is broad consensus on the need to support education and infrastructure spending and a strong social safety net. The essential issue in Uruguay, and indeed across the region, is the fundamental model of economic growth now that the easy growth of the past decade has essentially evaporated. The one applied by Mujica’s Broad Front over the past decade favors orthodox macroeconomic management with government intervention, state-directed resources and direct transfer payments to constituents. The other, associated with the National Party, seeks to reduce the role of the state, creating conditions for investment-led growth and opening economies through greater trade expansion.
Thanks to high commodity prices, the former has worked in countries like Bolivia, albeit combined with a pragmatic dose of the latter. But falling resource prices now present a real challenge to the sustainability of this model.
Happily for Uruguay, though, the country does not face the same economic headwinds as others across the region, primarily because it is not as dependent on commodities exports to China and elsewhere as most other South American countries are. While slowing growth in Argentina and Brazil traditionally hits Uruguay pretty hard, the United States has more recently become Uruguay’s largest export market. This is important because at least for now, the United States is the one bright spot in the global economy. Uruguay has long maintained a relatively diverse growth model, both in terms of products—from agriculture and ranching to timber and services—and also markets—in addition to the U.S., it has continued trade with Argentina, Brazil, Europe and, more recently, China. The Broad Front’s orthodox economic management has positioned the country to weather continuing mediocre global growth while maintaining social indicators among the highest in the region, albeit at an economic growth rate below the country’s potential.
One particularly intriguing aspect of the elections, which are not just for president but also the legislature, will be the continuing role of Mujica, who, though leaving the presidency, is heading the electoral list of senators within the Broad Front. It’s unlikely at this point that any single party will have the majority in either of the two houses of the Uruguayan legislature, and Mujica claims to want to be a voice for compromise within the new Senate. That kind of mediation may prove to be necessary depending on the outcome of the elections.
Nonetheless, the prospect of an outgoing president lodged in the legislature could become a complicating factor over time for the next president, in the same manner—although for different reasons—as former President Alvaro Uribe has proven to be in Colombia for President Juan Manuel Santos. Given Mujica’s unique background and independent approach to politics, observers will be watching closely to determine the ongoing political role that he seeks to play and its impact on the next government, whether it is run by his party or the current opposition.
The bigger picture, however, is that Uruguay’s democracy is stable and sound, and the economy, though slowing, has enjoyed the positive effects of capable management and broad political consensus for the past generation. Expect that to continue, whatever the results as voters head to the polls.
Eric Farnsworth is Vice President of the Council of the Americas. He previously served in the Clinton White House, the U.S. Department of State and the Office of the U.S. Trade Representative.