Uruguay country brief
Australia and Uruguay enjoy positive relations based on a number of shared interests and cooperation in a range of multilateral fora. Like Australia, Uruguay is a significant agricultural producer and exporter. Australia and Uruguay are members of the Cairns Group and cooperate in the World Trade Organization to advance global reform of agricultural markets.
Australia and Uruguay also work together on issues relating to the Antarctic, especially in efforts to address illegal fishing through the Convention on the Conservation of Antarctic Marine Living Resources (CCAMLR).
Australia maintains an Honorary Consulate in Montevideo, which provides consular services to Australians in Uruguay. Australia has non-resident accreditation to Uruguay through the Australian Embassy in Buenos Aires, which is responsible for our bilateral relationship with Uruguay. Uruguay has an Embassy in Canberra.
The Spanish first arrived in Uruguay in 1516, but resistance from indigenous inhabitants helped postpone full Spanish settlement until the early 18th century. Following secession from Spain in 1811, Uruguay was annexed by Portugal to its Brazilian territories. In 1825, Uruguay declared independence from Brazil, and in 1828 the country became fully independent under the Treaty of Montevideo. During the rest of the 19th century there was a number of minor conflicts with neighbouring states, coupled with considerable inflows of (mainly European) immigrants.
Throughout much of the 20th century, Uruguay's two main political parties, the centrist Colorado and National (Blanco) parties, have alternated in power. However, a military regime assumed control following a coup in 1973, and remained in power until 1985. The legacies of twelve years of military rule included an economy in severe decline and lingering human rights issues. Democracy was re-installed in 1985 and successive governments have worked to consolidate Uruguay's democratic institutions and stabilise the economy.
System of government
Uruguay is divided into 19 "departments" with limited local self-government. The political system is based on a strong central executive branch, subject to legislative and judicial checks. No member of any branch of government can simultaneously perform official duties in another branch.
The executive branch comprises the President, Vice-President and Council of Ministers. The President and Vice-President are chosen by direct popular vote for one five-year term (consecutive re-election is not permitted), and the ministers are appointed by the President. The legislative branch consists of a bicameral Parliament, comprising the Senate and the Chamber of Representatives.
Recent political developments
In elections held on 29 November 2009, José Mujica of the centre-left 'Encuentro Progresista Frente Amplio' (EP-FA) coalition was elected as President for the term 2010-2014. Despite his radical background, Mujica has gravitated to the political centre, consistently preaching moderation and placing practicality, continuing economic growth and consensus-seeking above ideological standpoints.
Uruguay's most important political and economic partners are its neighbours, in particular Brazil and Argentina. Argentina, Bolivia, Brazil, Paraguay (currently suspended) Uruguay and Venezuela are full members of Mercosur, the Southern Cone Common Market, which also comprises associate members from Chile, Colombia, Ecuador and Peru. Mexico is an observer.
Membership of Mercosur provides Uruguay with preferential trade access to the markets of Mercosur members and its associates. However, Uruguay has expressed an increasing dissatisfaction with the trading benefits that Mercosur has provided, and has mooted external FTAs (an idea opposed by its Mercosur partners as inconsistent with Mercosur rules).
Uruguay is also a member of several regional organisations, including the Union of South American Nations (UNASUR), the Community of Latin America and Caribbean States (CELAC) and the Organisation of American States (OAS), that seek to advance a variety of regional political and economic interests. In November 2012, Uruguay, along with Australia, became an observer of the Pacific Alliance, a group of outward-looking pro-trade liberalising Latin American economies comprising Chile, Colombia, Mexico and Peru.
Uruguay maintains positive relations with the United States, based on economic ties and regional cooperation aimed at combatting drug trafficking and terrorism. Uruguay and the United States have, in the past, put in place agreements to establish trade and investment relations, including the 2002 Joint Commission on Trade and Investment and a bilateral investment treaty, which entered into force in 2006.
Relations with China and India are growing. In June 2012, Chinese Premier Wen Jiabao visited Uruguay to strengthen ties and meet leaders, and in 2013 the two countries will celebrate 25 years of diplomatic relations. In February 2013, India and Uruguay entered into an agreement for exploring and encouraging investment in Uruguay’s mining sector.
In March 2011 Uruguay declared its recognition of a Palestinian State.
Uruguay’s economy is highly dependent on agriculture and the economic cycles of its close trading partners and neighbours, Argentina and Brazil. It was catastrophically affected by the Argentine debt default in 2001 (Uruguay repaid its outstanding debt to the IMF in December 2006). Uruguay's economic ties with Asia, in particular China, have grown substantially; bilateral trade between Uruguay and China has grown by 42.6 per cent over the past five years. Brazil was Uruguay’s principal export destination in 2011 (taking some 19 per cent of Uruguay’s exports), followed by China (14 per cent) and Argentina (6.8 per cent). Uruguay’s imports followed a similar pattern, with 16 per cent coming from Brazil, 15 per cent from China and 13 per cent from Argentina.
The Uruguayan economy has grown strongly since the 2001 crisis, averaging 5.4 per cent real GDP growth per annum from 2002-2010, resulting largely from robust private consumption, high employment rates and strong real wages. Economic growth in 2011 was 5.7 per cent and, while weakening, was forecast to grow at 3.5 per cent in 2012. In 2012, Uruguay’s total exports increased by 9 per cent to reach a historic high of US$8.7 billion.
The economy is based on solid macroeconomic fundamentals including strong reserves, low debt, high domestic demand and a diversified production structure. Recent economic growth has been broadly based, and the agriculture and livestock sectors are doing well. Initially this was due to growth in Brazilian and Argentine import demand as these countries recovered from their own economic crises. However, more recently the sectors have been buoyed by growth in the volume and value of Uruguay's agriculture and livestock trade with the United States. Uruguay's main exports include beef, rice, wool, leather, soy and dairy products. Tourism, wine and IT are significant and growing components of Uruguay’s services sector. The government has also announced plans to expand Uruguay’s wind energy sector and produce 90 per cent of its electricity from renewable sources by 2015, which has increased private and public investments in the sector.
The challenges for the Uruguayan government will be to reduce the budget deficit (2.8 per cent of GDP in 2012) and reduce inflation (8.7 per cent in 2012), while containing public-sector workers' wage demands, maintaining high levels of social spending and increasing investment in infrastructure. As part of a broader effort to regain investment grade credit ratings, the government will also seek to reduce the public debt ratio from an estimated 52.3 per cent of GDP in 2011 to below 40 per cent by the end of Mujica's term in 2014. GDP growth will likely be sustained by continued domestic demand, strong trading links with Brazil, and Mujica's plan to boost infrastructure expenditure in railways, ports, telecommunications and energy (to reduce reliance on expensive oil imports) through public-private partnerships.
Foreign direct investment (FDI)
Economy Minister Fernando Lorenzo has announced that he will seek to increase private investment as a share of GDP to 25 per cent by 2015. The previous government was able to increase the share of investment in GDP from 11.3 per cent in 2004 to 17.7 per cent in 2009, helped by projects in the cellulose, agriculture, forestry, communications and logistics industries.
Uruguay's strong GDP growth, political stability and low corruption levels have made Uruguay an attractive destination for investment. FDI has increased substantially in recent years, particularly in agriculture, forestry and tourism. Uruguay led Latin America in FDI growth in 2010 and is expected to continue attracting foreign investment through concerted efforts which include increasing transparency and the new public-private partnership scheme. In 2011, FDI in Uruguay was estimated at US$2.5 billion, an eight-fold increase over the previous decade.
In July 2011, Congress approved public-private partnership legislation, which will create new opportunities to work with Uruguay. The new law allows the Uruguayan government to enter into individual contracts with private companies, including foreign companies, in areas such as mining, transportation and infrastructure.
The government of Uruguay has introduced additional incentives for foreign investors including corporate income tax exemptions (of up to 100 per cent of the investment), tax free zones, free ports, free transit of goods and no foreign exchange controls.
The UPM pulp mill, the largest foreign investment project in Uruguay's history, is providing a significant boost to the national economy. The mill was initially the subject of controversy between Argentina and Uruguay after Argentine environmentalists protested that it polluted the Uruguay River, on the border between the two countries. Argentina took a case against Uruguay in the International Court of Justice, which was decided in Uruguay's favour in 2006. In July 2010, the Presidents of Uruguay and Argentina agreed to create a bi-national commission in order to monitor river pollution levels.
Planning for other large scale projects, including in mining and infrastructure is underway. In February 2013, three new public-private partnerships were announced, signaling an unprecedented increase in infrastructure FDI.
Australia is expanding its bilateral relationship with Uruguay through development cooperation, trade and people-to-people links, such as student exchanges and Australia's scholarship programs.
In November 2012, Australia and Uruguay signed an MOU for a work and holiday visa between the two countries.
In May 2012, Uruguayan Minister for Industry, Energy and Mining Roberto Kreimerman visited Australia for the inaugural Latin America Down Under conference, at which he delivered a speech and met Foreign Minister Senator Bob Carr. He was the first Uruguayan minister to visit Australia since Foreign Minister Enrique Eglesias García visited Cairns for the inaugural Cairns Group meeting in 1986.
In December 2011, Parliamentary Secretary for Pacific Island Affairs Richard Marles attended the XLII Mercosur Summit in Montevideo.
In April 2010, Australia signed an MOU on Strengthening Bilateral Trade and Investment with Uruguay. The signing of the MOU took place during the visit by then Trade Minister Simon Crean to Uruguay, during which he co-chaired the Cairns Group Ministerial meeting with Foreign Minister Almagro.
The first bilateral Australian parliamentary delegation visit to Uruguay took place in July 2007. The delegation, hosted by the Uruguayan Parliament, held discussions with the International Affairs Committee of the House of Representatives and senior Uruguayan Government authorities, including the Foreign and Agriculture Ministers.
In 2011, the Australian Uruguayan Chamber of Commerce was established. The Chamber, based in Uruguay, operates under the form of a non-profit civil association. It focuses on promoting and developing relations between Uruguay and Australia.
Bilateral economic and trade relationship
In 2011-12, two-way merchandise trade with Uruguay totalled A$24 million, with Australian imports from Uruguay totalling around $A16 million. Imports mainly comprised food products, floor coverings and oils and perfumes. Exports to Uruguay totalled $A8 million in 2011-12, comprised mainly of vegetable materials, wool and civil engineering equipment.
Australia and Uruguay participate in the CER-Mercosur Dialogue, bringing together Australia, New Zealand and Mercosur members (the most recent dialogue took place in Brasilia in October 2012). The dialogue was established in 1996 as a mechanism to strengthen cooperation on global trade policy issues and to promote inter-regional trade and investment.
Similarities in the primary exports of Uruguay and Australia present opportunities for the export of Australian agriculture-related technology and services, including animal genetic material. One strategy for Australian companies looking to invest and trade in Uruguay is to extend existing interests they may have in Argentina and Brazil. Australian companies with existing interests in Argentina and Brazil may find that the close commercial ties that these countries have with Uruguay may facilitate entry into the Uruguayan market.
New opportunities for Australian investment are opening up in the areas of agriculture, mining and infrastructure. The public-private partnerships initiative presents additional opportunities for Australian companies to invest in Uruguay through infrastructure projects, such as deep-water ports, roads, rail, river transport, energy (oil, gas and wind farms), irrigation dams, tourism infrastructure, recreational ports and marinas, hospitals and jails. Australian company Petrel Energy has a large interest stake in the US company Schuepach Energy International (SEI) for large scale oil and gas discoveries in Uruguay, particularly in the Norte Basin.
Updated March 2013