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Uruguay sets course to become gateway to Mercosur bloc
Journal of Commerce / May 14, 1999

By Larry Luxner

MONTEVIDEO, Uruguay -- Despite its small size, Uruguayan President Julio Maria Sanguinetti says there's no reason his prosperous country shouldn't be the gateway to South America's booming Mercosur trade bloc.

The president -- a former journalist, lawyer and historian who took office in March 1995 -- has had the good fortune to preside over an economy that grew 5.1% last year, and is expected to expand by another 5% in 1998.

Sanguinetti -- who arrives in Miami today to close a three-day conference aimed at luring U.S. investment to Uruguay -- says his economic policies seek to improve the competitiveness of Uruguayan public and private enterprises, while gradually privatizing state entities and granting long-term concessions to private interests in the areas of road construction, port and airport operation, gas pipelines, forestry, water and sewer systems.

"Relations between Uruguay and the United States have always been good. It's never swung from left to right like a pendulum, as has been the case with other countries, and we've never had differences in our objectives," Sanguinetti said told The Journal of Commerce in an exclusive interview last week in Montevideo. "We believe in the same values: free-market economies and strong bilateral cooperation."

In February, Uruguay's jobless rate fell to 10.1%, the lowest in three years. The National Statistics Bureau attributed the good news to Sanguinetti's fiscal reforms and policies encouraging foreign investment in agribusiness, manufacturing and tourism.

Sanguinetti, 62, says he supports privatization, but at a far more gradual pace than his predecessor and longtime political adversary, Luis Alberto Lacalle of the Blanco Party. "It has not been a dramatic process like in Mexico or Argentina," he said. "In Uruguay, the situation was different, and in any case, this process has had its peculiar characteristics."

During the interview, Sanguinetti outlined the various methods his administration has pushed along the process, including the awarding of concessions to private companies to operate cellular telephone networks, operate a container terminal at the port of Montevideo, construct a toll road between Montevideo and Punta del Este, and build a new $40 million international airport for Punta del Este.

"Some sectors won't be privatized," he added. "A [December 1992] plebiscite determined that Antel, the phone company, wouldn't be privatized. People voted that way because the service was good -- and cheaper than Argentina or Brazil. Everyone knew what happened in Argentina when Entel was sold off."

The most important project now under discussion is a $1 billion bridge known in Spanish simply as "el puente." When finished, this 35-kilometer bridge -- the longest of its kind in the world -- will link Buenos Aires with the small Uruguayan port of Colonia, providing a direct highway route for truckers transporting goods between Argentina and Sao Paulo, Brazil.

Despite opposition by environmentalists, Colonia residents and other skeptics who say the bridge isn't necessary, Sanguinetti says "I'm 100% in favor of it. We hope it'll be approved by the Senate in October."

The president adds that "in 10 years, Uruguay will be located in a very dynamic region between Buenos Aires and Sao Paulo. Uruguay will be the great administrative center of the region," and that the puente is key to that economic integration.

Helping Uruguay is the fact that Montevideo is now the administrative capital of Mercosur, whose founding and associate members now include Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay.

"Mercosur came about much more rapidly than we expected," said Sanguinetti. "Argentina and Brazil had very closed markets, and were under much more pressure to change than was Uruguay. Since the 1970s we've been bringing down tariffs, so for us, the change was not so brutal. In the past seven years, exports of Uruguayan products have increased 84%, and to other Mercosur countries, 100%."

Meanwhile, other major projects are moving forward. In late March, nine international consortia representing firms from Argentina, Belgium, Brazil, Canada, France, Germany, Italy and the United States submitted 30 offers to construct and operate Montevdeo's new Carrasco International Airport. The $180 million project, being supervised by the Ministry of Defense, includes the rehabilitation of paved surfaces, a drainage system, extension of the main runway to 3,000 meters and a secondary runway to 2,250 meters. The government will decide by Jun. 30 which consortia will qualify.

Likewise, a consortium formed by British Gas, Amoco and Argentina's Bridas recently won the bid to construct a 150-mile gas pipeline between Buenos Aires and Montevideo. Construction on the $100 million Gasoducto del Sur will begin in October and be completed by late 1999, with gas deliveries to begin in 2000.

"We've had more inquires in the last 12 months than we've had since 1985," says David Michaels, president of the Uruguayan-American Chamber of Commerce in New York, attributing the interest to fallout from the Asian financial crisis.

"We all know that Uruguay cannot compete from an industrialized point of view, but it can compete from the point of view of quality -- not quantity -- in manufacturing and in services. Uruguay has always been a buffer in the region, it's a neutral country and it can maintain that role of providing innovations that are beneficial for the whole region."

Interestingly, Lacalle, who was president from 1990 to 1995 -- takes much of the credit for Uruguay's transition to a free-market economy.

"Ours was a much more active government. The port reform law was passed during my administration in 1992. This government is only finishing the things we began," said Lacalle. But he added that Sanguinetti and other officials of the ruling Colorado Party "have had the courage to change, and they have kept the ball rolling."

Asked what Uruguay's biggest challenge is, Sanguinetti doesn't hesitate.

"To succeed with integration," he says, "while preserving Uruguay's classic social equilibrum. Uruguay has the fairest income distribution in Latin America. Our great challenge is to maintain this reformed welfare state while integrating with its bigger neighbors."

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