Americas Average = 62.3 World Average = 60.6 1995 2007 100 80 60 40 20 0 QUICK FACTS 385 How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index. Uruguay’s economy is 69.3 percent free, according to our 2007 assessment, which makes it the world’s 33rd freest economy. Its overall score is 1.8 percentage points higher than last year, partially reflecting new methodologgica detail. Uruguay is ranked 8th out of 29 countries in the Americas, and its overall score is higher than the regional average. Uruguay enjoys high levels of investment freedom, trade freedom, property rights, freedom from corruption, and fiscal freedom. The average tariff rate is fairly low, although non-tariff barriers are extensive, and while bureaucratic procedures can be time-consuming, business regulation is relatively simple. The boom in private enterprise and lack of a personal income tax have given Uruguay Latin America’s fourth highest GDP per capita. Foreign investmeen is permitted in almost all sectors, and the governmeen has never expropriated foreign capital. The judiciary is independent of politics and free of corruption but can be subject to bureaucratic delays. Uruguay’s labor market is highly flexible, and firing a redundant worker is easy. Uruguay could do slightly better in financial freedom and monetary freedom. Inflation is fairly high, and the governmeen fixes the prices of a few staples. The financial sector is small and subject to government interference, although this is partially a response to financial crises in nearby Argentina and Brazil. BACKGROUND: Uruguay has a history of stable democratic government and a small economy based largely on beef and wool exports. Today, wood and software are gaining market share, and the government is increasingly tradefrieendly Despite being a founding member of MERCOSSU (the Southern Cone Common Market), Uruguay has signed a bilateral investment treaty with the United States, which is now its major trade partner, and has proposed free-trade accords with the U.S. and China. Uruguay’s rule of law rivals Chile’s, and the country has Latin America’s fourth highest GDP per capita. URUGUAY Population: 3.4 million GDP (PPP): $32.4 billion 12.3% growth in 2004 –0.6% 5-yr. comp. ann. growth $9,421 per capita Unemployment: 12.2% (2005 estimate) Inflation (CPI): 9.2% FDI (net inflow): $299.5 million Official Development Assistance: Multilateral: $15 million Bilateral: $19 million (3% from the U.S.) External Debt: $12.4 billion Exports: $4.0 billion Primarily meat, rice, leather products, wool, fish, dairy products Imports: $3.7 billion Primarily machinery, chemicals, road vehicles, crude petroleum The economy is 69.3% free Rank: 33 Regional Rank: 8 of 29 @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@BUSINESS FREEDOM — 68.1% Starting a business takes an average of 43 days, compared to the world average of 48 days. To maximize entrepreneurshhi and job creation, it should be easier to start a company. Both obtaining a business license and closing a business are relatively simple, although bureaucratic obstacles and delays remain problems. The overall freedom to start, operate, and close a business is relatively well protected by the national regulatory environment. TRADE FREEDOM — 71.6% Uruguay’s weighted average tariff rate was 4.2 percent in 2004. Import bans and restrictions, import taxes and fees, quotas, import licensing requirements, protectionist antidummpin and safeguard provisions, and customs delays all add to the cost of trade. Consequently, an additional 20 percent is deducted from Uruguay’s trade freedom score to account for these non-tariff barriers. FISCAL FREEDOM — 90.8% Uruguay imposes no income tax, and its top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT), a capital tax, and a property transfer tax. In the most recent year, overall tax revenue as a percentage of GDP was 21.9 percent. FREEDOM FROM GOVERNMENT — 81.7% Total government expenditures in Uruguay, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 27.2 perceen of GDP, and the government received 3 percent of its revenues from state-owned enterprises and government ownership of property. MONETARY FREEDOM — 73.1% Inflation in Uruguay is high, averaging 7.1 percent between 2003 and 2005. Relatively high and unstable prices explain most of the monetary freedom score. Uruguay has eliminaate most price controls, but the executive branch continnue to fix prices on certain staples, including milk, and the government influences prices through regulation and numerous state-owned enterprises and utilities, includiin energy, petroleum products, and telecommunications. Consequently, an additional 10 percent is deducted from Uruguay’s monetary freedom score to account for these policies. INVESTMENT FREEDOM — 70% Foreign investors face few restrictions outside of statemonoopol sectors. Uruguay has traditionally met all of its commitments to foreign investors and has never confiscatee any foreign capital. State monopolies include electricity, hydrocarbons, railroads, some minerals, port administratiion and telecommunications, although the government permits some of these monopolies to forge private partnershiips Both residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, transactions, transfers, or repatriation of profits. Non-residents may purchase real estate. FINANCIAL FREEDOM — 30% Uruguay’s small financial system is subject to heavy governnmen influence. Economic crises in Argentina and Brazil spurred a financial crisis in Uruguay and led to the closiin of four major banks. The assets of those banks were grouped into the new state-owned (but privately managged Nuevo Banco Comercial in 2003. Uruguay’s banking system now includes the central bank, three state-owned banks, 23 private banks, and 15 other financial institutions. The state-owned Banco de la República Oriental del Uruguua is the country’s largest bank, and the state-owned Banco Hipotecario del Uruguay is the leading mortgage lender. Most private banks are foreign bank branches. Long-term banking credit has been scarce since the 2002 financial crisis. Insurance was a government monopoly until 1996, when the government opened most insurance sectors to private competition. The government-owned Banco de Seguros del Estadoize still dominates the sector, accounting for over half of the market. Capital markets are underdeveloped and concentrated in government debt. The two stock exchanges listed only 19 firms in 2006, and trading is negligible. PROPERTY RIGHTS — 70% Private property is generally secure, and expropriation is unlikely. Contracts are enforced properly, although the judiciary tends to be slow. The government has established a Settlement and Arbitration Center to improve investment relations. FREEDOM FROM CORRUPTION — 59% Corruption is perceived as present. Uruguay ranks 32nd out of 158 countries in Transparency International’s Corrupptio Perceptions Index for 2005. LABOR FREEDOM — 79% The labor market operates under relatively flexible employmeen regulations that enhance overall productivity growth. The non-salary cost of employing a worker is low, and dismisssin a redundant employee is relatively easy. URUGUAY’S TEN ECONOMIC FREEDOMS Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 100 = most free, = world average 0 50 100 386 2007 Index of Economic Freedom 68.1 71.6 90.8 81.7 73.1 70 30 70 59 79 L L L L L L L L L L