While unlike Argentina which has a 1 to 1 parity scheme we had a sliding currency, such ‘slide’ was more or less similar to inflation and in recent years it was higher than inflation under controlled and predictable conditions. Now people feel it is unpredictable. First, because they already have the feeling that Argentina is unpredictable. Uruguay managed quite well to resist the Brazilian devaluations but the Brazilian plus the Argentine devaluations combined would be impossible for Uruguay to bear. Then the Argentine uncertainty plus the Uruguayan political uncertainty have prompted the same feeling in the people: uncertainty.

For now, the only concrete effect is recession in long-term property purchases. People fear dollar borrowing, especially long-term borrowings that were being made here to 15, 20 or 25 years. The other effect was translated into mortgage loans that were made here on a readjustable basis. As this cannot be changed, the Banco Hipotecario (mortgage bank) increased interest rates and the more expensive credit meant a sort of devaluation.

How was this decision made from the political point of view?

The liberal-oriented government conducted strong pending structural reforms. The country had carried out moderate reforms with a strong role of the State and then came a government, in particular a President with a strong ideology but with undefined plans and programs. So the government has no concrete measures to implement. This situation translates into a President that has managed to seduce people, even political leaders –especially the left-wing- on the one hand, and the other an Economy Minister that is poor at communicating and is sluggish to forge ties with political players and so far from conveying quietness, announcements usually awaken concern.

The advent of devaluation rises after the foot-and-mouth disease outbreak. Uruguay had taken a free foot-and-mouth disease country without vaccination and believed it to be a safe position when in November outbreaks are reported in Argentina unrecognized by the government. The attitude was quite passive at first but in few days, it penetrated the whole national territory except for some isolated areas. Uruguay was forced to shut the markets to the detriment of its exports. The farming sector which has been into debt for years, was dealt a strong blow.

Here comes the Argentine devaluation. The government was highly pressed by the National Party that had been calling for farming measures. Many difficulties were also registered to enter products in Brazil and Argentina. With the questioning of the Mercosur as a valid tool of the present and the exports hampered by the exchange rate, the government had no choice but to make this decision.

'Uruguay had been betting on the Mercosur for years. But as the bloc was not
institutionalized President Batlle took an anti-Mercosur stance despite what facts were showing'.

In Argentina and Brazil there are increasingly pessimistic hypotheses about the economic growth prospects for the years ahead. What is Batlle’s idea in this regard?

For Uruguay the foreign front is extremely important. Of course, it is as important for Argentina and less important for Brazil. But the foreign front is highly important for Brazil. It is a small country where the foreign market is the centerpiece: with a 3 million- people domestic market not much is produced in this world of big markets...

For many years, Uruguay has been betting on the Mercosur. Not as a simple agreement to sell more but as a far-reaching integration process for Uruguay that was about to forge a political integration. In other words, a similar process to that of the European Union (EU). This gets more complex after the January 1999 real devaluation and follows with measures taken by Brazil and Argentina in response to immediate trade interests every time domestic sectors were pressed or affected. That is, it is not a fluent relationship. For one, it was not institutionalized –in case there’s an export-related problem between Argentina and Uruguay there is no court to decide but remains as a political dispute where political interests are at stake and there are no clear agreements just as in the EU.

For another thing, President Batlle in turn was losing his faith in the Mercosur and took an anti-Mercosur stance despite what facts were showing –and very anti-EU as well. The underlying reasons relate to the idea that there was an open road for Uruguay to the United States –the FTAA or NAFTA. This was a sort of major hope that fades away when we realize the progress toward the FTAA is slow and much slower toward the NAFTA. Chile is first in the line to enter and already has plenty difficulties, so imagine Uruguay…And here is where the Uruguayan government is deprived of a foreign policy. They played against the Mercosur and the EU, the betted on the NAFTA and it turns out that the NAFTA attempt fails. Moreover, the foot-and-mouth closes the beef markets to North America -United States, Mexico and Canada- which was of paramount importance. Uruguay is treading on shivering sands on the foreign policy front.

One problem relates to the foreign relations and the other to the domestic horizon. Uruguay still has not devised a strategy of what to produce and sell. Before the foot-and-mouth disease broke out, we all though that the rural production was the slowest industry. The problem is it is not clear what Uruguay is betting on. In addition, the Uruguayan financial system –one of the country’s cornerstones in the last decade- is being hit by the transformations of the financial systems of Brazil and Argentina giving rise to many markets in the Southern Cone.

The banking secret itself is no longer as hermetic as it used to be after Uruguay had to conduct some transformations resulting from the international agreements against money-laundering. The financial market still exists, it is still good, the country is in a better shape as a refuge than Argentina or Brazil but it is no longer the fortress is was before. All in all, the Uruguayan perspectives do not differ so much from those of Argentina or Brazil.

How would you describe the current social situation in Uruguay?

The social situation portrays notorious tension. Undoubtedly, unemployment is very high –figures are estimated at an unprecedented 16%. We must remember a year and a half ago, or less, the inflation rate stood below 11% and was viewed as the peak: today we are over 15%. This prompts a complex scenario.

Also, the world sees Uruguay a country that after many years is once again immersed in a sort of migratory psychosis that has more of psychosis than real figures as these are never as terrible as they seem. Anyway, it all shows the widespread disbelieving mood of the people.

Desde la izquierda se habla de la posibilidad de estallidos sociales. No hay indicadores ciertos de que pueda haberlos, desde hace muchas décadas que esto no sucede. Incluso el movimiento sindical uruguayo, últimamente es bastante débil, más allá de que tenga un buen poder de convocatoria cuando hace algún paro general y no son muy seguidos uno del otro -cuando son muy seguidos, el nivel de acatamiento baja. Pero lo que sí debemos admitir es que hay una situación muy grande de empobrecimiento.

The left is speaking of likely social outbursts. There are no certain indicators that may signal them. They have not appeared for many decades. Even the Uruguayan trade union movement has been weak lately despite the fact it gathers a good observance in general strikes that are not launched one after another (in these cases the observance rate drops). But what we should admit is the prevailing widespread poverty that hits the country.