The Crisis in Uruguay: The Long View

September 25, 2007

Montevideo—July 2002 will be remembered as the month the Uruguayan crisis exploded. It is a triple crisis—economic, political, and social—that has been brewing for years in a society that didn’t want to pay attention to facts that pointed to an imminent financial disaster. The government had to close banks for four days to prevent depositors from emptying them, since the climate of uncertainty was increasing.

But the bank closings paralyzed an economy that had already deteriorated and the poorest Uruguayans, who live off the formal economy’s leftovers (street vendors, those who watch parked cars, cleaning people) suffered hunger and anguish. Raids on supermarkets were the only way out for them, since state and municipal soup kitchens were overwhelmed. The government’s only response was to surround the poor neighborhoods with an enormous deployment of police, with helicopters patrolling day and night to prevent residents from leaving their ghettos.

The last chapter began on August 4. In the midst of a climate of intimidation, Parliament approved a law to “strengthen the financial system” that was to the detriment of the state banks—even though they hold 75% of deposits—and favored the four private foreign banks that will from now on dominate the financial system.

As soon as the parliamentary session ended, the IMF approved a loan in the extraordinary amount of $1.5 billion and the U.S. ambassador to Uruguay, Martin Silverstein, celebrated the decision.But the crisis is not over and the image of hundreds of very poor people raiding supermarkets for food destroyed the myth of a socially integrated, peaceful and educated country known as the “Switzerland of Latin America.” Although the government and the IMF hold that the crisis is due to “contagion” from the Argentine crisis, its roots lie in structural adjustment policies applied in Uruguay since 1990.

Elected in 1989, Luis Alberto Lacalle’s National Party government implemented hardline adjustment policies aimed at reducing the fiscal deficit, devaluing the Uruguayan peso, opening the economy and promoting rapid modernization. In a short time the Lacalle government took apart the welfare state that the military dictatorship (1973-1985) had not managed to dismantle.

Although Lacalle did not privatize state enterprises, thanks to the staunch opposition of the left and a powerful labor movement, the economic opening resulted in the almost total closing of large industries: textile, metallurgical and leather tanning industries, and the entire sector that served the domestic market.

In a few years, the industrial sector that had developed during the period of import substitution was dismantled. In 1995 Julio María Sanguinetti of the Colorado Party returned to the presidency and his government and later ones put their faith in an economy based on financial services and tourism. Protected by a law that guarantees banking secrecy, the Uruguayan financial system was transformed into a refuge for speculative capital, often originating from Argentine capital flight, and became part of the global money-laundering circuit for drug dollars and other profits from illicit ventures.

The country’s economic vulnerability had dire social consequences. By the end of the decade, one of every seven Uruguayans had abandoned the country; half of all children were being born into homes in which basic necessities are not met; unemployment reached 15%; almost 30% of the active labor force was underemployed or working informally. Today, half of Uruguayans must survive outside the formal economy and 20% of Montevideans live in precarious illegal settlements.

Women and youth were the most affected sectors. In the marginal neighborhoods, half of households are headed by single mothers, often victims of domestic abuse and social and occupational discrimination. In total, more than half of youth are unemployed and have no hope of finding jobs. Poverty led directly to social disintegration, delinquency statistics shot up and transformed poor neighborhoods into ghettos that do not even receive minimal services.

When the economic crisis that hit Brazil in 1998 and Argentina in 2000 struck Uruguay this year, the country lacked the resources to stop the downward trend, since it had already destroyed its productive system. The crisis toppled Mercosur, which was never consolidated as a real regional common market, leaving each country’s economy unarmed in confronting the onslaught of the Free Trade Area of the Americas (FTAA). Before 1998, 50% of Uruguayan exports were directed to Brazil and Argentina; that figure has currently been reduced to 25%.

Since then, Uruguay’s GDP has dropped more than 20%. But the regional economic crisis turned into a political crisis when the Argentine people revolted on December 19 and 20 and overturned the government of Fernando de la Rúa.

Since that moment, the Uruguayan government, led by Jorge Batlle, a man linked to investment capital, friend of George Bush Sr. and defender of the FTAA, was set on denying the seriousness of the crisis and blaming the popular sectors and the left. Since January 2002, the central bank lost 75% of the country’s reserves and the deposits in the financial system were reduced by half without anyone doing anything to stop it.

The Broad Front coalition of leftist parties got 40% of the votes in the last election and is favored to win the November 2004 presidential election. The future president, however, may have to face an ungovernable country.

Raúl Zibechi is editor of the international section of the Uruguayan weekly Brecha, and author of Los arroyos cuando bajan. Los desafíos del zapatismo (Nordan, 1995), La revuelta juvenil de los 90. Las redes sociales en la gestación de una cultura alternativa (Nordan, 1997) and La mirada horizontal. Movimientos sociales y emancipación (Nordan, 1999). Translated from the Spanish by NACLA.


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