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Uruguay is capitalizing on new prosperity
Development Business / June 16, 1998

By Larry Luxner

MONTEVIDEO, Uruguay -- Despite its small size, Uruguayan President Julio Maria Sanguinetti says there's no reason his sparsely populated country -- which has eight times more sheep than people -- shouldn't be the gateway to South America's booming Mercosur trade bloc.

The 62-year-old 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 4-5% in 1998. Sanguinetti's success is due in large part to privatizations, concessions and other market-oriented reforms that have encouraged foreign investors to take a closer look at this nation of 3.2 million.

"Uruguay has made significant, albeit gradual progress during Sanguinetti's second administration in opening up its economy to private investment while maintaining social stability," observes the U.S. Embassy in Montevideo. "Assuming Sanguinetti can keep his governing coalition intact, more business opportunities should become available to potential investors."

Helping Uruguay is the fact that Montevideo is the administrative headquarters of the Southern Common Market (known in Spanish as Mercosur), whose founding and associate members now include Argentina, Bolivia, Brazil, Chile, Paraguay and Uruguay.

Like their European counterparts in Brussels, Latin bureaucrats now gather for conferences at the elegant Edificio Mercosur building, inaugurated by half a dozen South American heads of state last December. At night, the former hotel's brightly illuminated facade gleams like a beacon along La Rambla, Montevideo's seaside boulevard.

"Things are improving," says Horacio Hughes, president of the Uruguay-United States Chamber of Commerce in downtown Montevideo. "Once inflation is in the single digits and the economy has proved to be growing significantly, this country should become the service and financial center of Mercosur."

Even the Asian financial crisis that clobbered neighboring Brazil earlier this year has been a temporary boon to Uruguay, often called the "Switzerland of Latin America" because of its strict bank secrecy laws and stable political environment.

"The Asian crisis has had a favorable impact on us. In the last few months, about $400 million has entered Uruguay from Argentina and Brazil," says Ariel Davrieux, director of the country's Office of Planning and Budget, though he added that Malaysia has quietly dropped a project to build a $30 million planned community east of Montevideo.

Nevertheless, Uruguay's new prosperity is evident all over the staid capital city, where new Nissans, Toyotas and Fiats share the streets with occasional Model T's, Cords and other relics from the 1930s and 1940s. Downtown, a new, steel-and-glass, 26-story addition to the Victoria Plaza Hotel towers over the quiet square where national hero Jose Artigas is entombed.

Near the recently privatized container terminal, state phone monopoly Antel has just laid the cornerstone for its 34-story, needle-shaped "Torre de las Comunicaciones," which will be the tallest building in Uruguay upon completion in 2000.

The prosperity is also evident on the outskirts of Punta del Este, home of a new $40 million airport. General manager Gabriel Gurmendez says his project, inaugurated in November, is the first private airport in the world in which the World Bank's International Finance Corp. has taken a direct equity investment.

Further east, along a privately constructed, four-lane toll road, is Punta del Este itself, a traditional summer resort frequented by wealthy Argentines. Uruguay's largest and most expensive hotel ever, the lavish $207 million Conrad Resort & Casino, opened for business late last year -- employing 1,000 workers and boasting South America's biggest casino.

"We have 302 rooms, including four presidential suites named after the four founding member nations of Mercosur," says the hotel's sales and marketing manager, Alejandro Pariente, who says the suites go for $5,000 a night. "But Mercosur is expanding, so now we'll have to rename them."

Long dependent on exports of beef, wool and grain, Uruguay is a major agricultural nation and the world's sixth largest rice exporter. In dollar terms, textiles accounted for $500 million in foreign-exchange earnings last year, followed by beef ($384 million); leather goods ($350 million); rice ($250 million); seafood ($92 million) and timber ($50 million).

But the country now sees its future in terms of tourism, financial services and telecommunications. In late May, an Uruguayan newspaper reported that Walt Disney Co. was talking to Tourism Ministry officials about investing up to $100 million in a theme park in either Montevideo or Colonia.

When it comes to telecom, the country already has a head start; three out of 10 Uruguayans have telephones in their homes -- giving the country the highest phone penetration in Latin America -- and nearly every business owner and college student, it seems, has access to the Internet.

Sanguinetti, who visited Miami and Washington in mid-May, 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.

"It's been a gradual process, not dramatic like in Mexico or Argentina," the president said in an interview in Montevideo. "In Uruguay, the situation was different, and in any case, this process has had its peculiar characteristics. In some cases, we've gone into joint ventures with other companies, for example [the Brazilian airline] Varig. In others, we've given concessions to private companies, for example, cellular telephony. We have a state port system, but we've established private concessions in services. The largest privatization of all has occurred in the pension system."

So far, those policies seem to be working. In February, Uruguay's jobless rate fell to 10.1%, the lowest in three years. And inflation is running at a relatively low 16%.

"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. "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."

But Sanguinetti has his share of dectrators, and opposition leader Luis Alberto Lacalle -- who was president from 1990 to 1995 -- isn't shy about taking 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 the 55-year-old Blanco Party politician. "Uruguay has seen its economy grow 32% in 10 years, with very little population growth. That means more money, yet people feel it's not going in their pockets."

On the other hand, Lacalle notes that Sanguinetti and other officials of the ruling Colorado Party "have had the courage to change, and they have kept the ball rolling."

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, in what's estimated as a $180 million venture.

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 Gasoducto del Sur will begin in October and be completed by late 1999, with gas deliveries to begin Jan. 1, 2000. The $100 million pipeline will initially transport two million cubic meters of natural gas a day to southern Uruguay, later rising to five million cubic meters.

The most important project, however, is a $1 billion bridge known in Spanish simply as "el puente." When finished, this 41.5-kilometer (26-mile 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.

The final design features four elevated bridge spans for ship traffic, three of them 32 meters high and 200 meters wide, and the principal bridge 65 meters high and 550 meters wide. The foundations will be built on piles at depths of 20 to 45 meters, according to specifications provided by the 15-member Binational Bridge Commission in Montevideo.

Once the bridge is approved by both the Argentine and Uruguayan governments, tenders will be opened for a 35-year concession to build and operate the bridge. Seven consortia have already been prequalified; two of them include U.S. firms Bechtel and Parsons. Feasibility studies by Louis Berger International Inc., Latham & Watkins and Bear Stearns & Co. Inc. predict annual revenues of $170 million and a 27.8% internal rate of return by 2003 -- assuming a daily traffic flow of 5,400 vehicles (90% of them cars, 7% trucks, 3% buses), and a $75 toll per automobile.

Despite opposition from environmentalists and others who say the bridge is an extravagant and unnecessary waste of money, this is one issue on which Sanguinetti and his predecessor clearly agree.

"I'm 100% in favor of it," says the president. "We hope it'll be approved by the Senate in October."

"I'm in favor of the puente," says Lacalle, who's hopes to be re-elected president in November 1999. "It's the modern thing to do. It's a bonus for Uruguay."

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