Uruguay’s recent economic performance, together with the stability of its political, economic and social institutions and its valuable human and cultural heritage, have made it a safe destination for investment and residence. Uruguay has an area of 176,000 km2 with rich grasslands, is bathed by the waters of the Atlantic Ocean and the rivers Rio de la Plata and Rio Uruguay, and has one of the largest fresh water reserves in the world, the Raigón Aquifer.

Abundant highly productive soils ideal for livestock and agricultural activities, a mild climate, a rich biodiversity and beautiful landscapes, support the country brand of Uruguay as: “Natural Country.”

Strategically located in the heart of the Mercosur – the largest common market in the region, with a potential of 250 million consumers – it became an ideal platform to generate businesses with the rest of the world.

The stability of its political, legal, economic and social institutions provides a safe framework for investment, thus positioning Uruguay as one of the most stable, reliable and safe economies in Latin America.

At the same time, the Uruguay’s welcoming people, high level of education, environmental quality, respect for individual rights and high levels of safety have turned this country into an ideal place for residence, where peace and quality of life are the more outstanding traits. No wonder the main city of the country, Montevideo, has been repeatedly recognised as one of the best Latin American cities to live in.

In 2010 the country continued to be at the top of The Economist Democracy Ranking, while maintaining the lowest corruption perception indexes in the region, according to Transparency International. Uruguay has also been one of the few countries to register an increase in economic activity in 2009 – in the middle of an international financial crisis – and has been enjoying sustained growth for the last few years.

Between 2005 and 2010 Uruguay’s gross domestic product increased at an annual average rate of 6.4 percent, well above average Latin American economic growth and its own historical average. In 2010 it rose to 8.5 percent, and for 2011 various national and international projections show that the growth rate will be greater than six percent.

This successful performance has not been coincidental. Uruguay’s economic achievements were based on the implementation of a sustainable and equitable model of growth and development: in which macroeconomic prudence guided authorities’ policy, in order to maintain essential macroeconomic balances.

Clearly focused on the preservation of political and economic stability, favouring the generation of productive investments, care for the environment, and the improvement of standards of living, the economic model rests on a prudent macroeconomic policy, a responsible management of public debt, the growth and diversification of foreign trade and the existence of a healthy banking system.

Prudent macroeconomic policy
The correction of the country’s macroeconomic imbalances reduced volatility and generated a favourable scenario to enhance equity and increase private investment: the driver of economic development.

The implementation of a monetary policy committed to control inflation has meant that in recent years annual price level growth has been kept in the single digits – and within the target range of the government.

Throughout 2011 Uruguay had to face greater inflationary pressure: from external sources, such as high international prices for commodities like food and energy; and from internal sources, such as higher consumer spending as a result of higher revenues. Under this scenario, the authorities ratified their commitment to price stability through a restrictive monetary policy, being able to control price increases around mid-year.

The fiscal policy management focused on fostering equity, efficiency and productive investment, without ever disregarding fiscal order and public accounts balance.

Through a fiscal strategy tending to improve tax collection efficiency and the quantitative and qualitative characteristics of public expenditure, the average fiscal deficit from 2005 to 2010 decreased to around one percent.

Higher revenues provided the necessary margin for fiscal policy to face the negative impacts of oil price increase, as well as the dramatic increase in energy costs caused by adverse weather conditions.

At the same time, the country’s more comfortable financial situation allowed the government to re-direct public expenditure towards social and infrastructure areas, and to create incentives for national and foreign private investment.

Solvency in managing public debt substantially decreased its impact on the country’s GDP, while the existence of a public debt planning process cleared the maturity horizon for the coming years.

Within this context, the gradual reduction of the dollarisation of public debt was achieved. This ensures the national economy is less exposed and vulnerable to external turbulence. The high degree of reliability and safety translated into lower country risk and higher public securities prices than ever before in the history of Uruguay.

Besides, the country shows excellent international reserves amounting to $10.1bn (24 percent of GDP) in mid-2011.

Opening doors to investment
Uruguay’s economic reforms were made alongside a process of increasing openness to international markets, which has resulted in a sustained increase in the export of goods and services, as well as greater diversification of commercial destinations.

Uruguayan exports hit a new record high in 2010, totalling over $10bn (26 percent of GDP), and continued increasing by 34 percent in the first months of 2011. The annual exports of goods increased by 29 percent, fostered by favourable exchange rates and international demand, while exports of services grew 44 percent, mainly due to the improvement of tourism and software sales. In particular, tourist activity in Uruguay, which registered a new record in summer 2011, had already been recognised by the International Organisation of Tourism for its excellent performance during the recent global economic slump.  Likewise, the improvement of software exports positions the country as the top regional exporter per number of inhabitants.

Reliable banking infrastructure
Uruguay’s banking system – which consists of 12 first-rate international banks and the public bank Banco República – remained healthy, safe and reliable.  The commercial banks maintained the excellent financial indicators of solvency and liquidity shown in recent years, even during the financial crisis.

The enhancement of prudential regulations determined that the measures taken to ensure banks’ solvency were even more stringent than those suggested by Basel. Accordingly the capital adequacy of the system (Tier 1 ratio) has reached 17 percent, more than double the eight percent minimum required by regulations.

Furthermore – and unlike other banking systems – the default rate has remained extremely low (one percent), due to the high quality of the credit portfolio of the banks.

Investment Promotion
The main feature of the development model Uruguay has implemented has been to encourage and support private, national and foreign productive investment.

On the basis of a reliable legal framework and clear, fair rules for each investor, the current Regime of Investment Promotion includes a series of tax exemptions and benefits, such as an income tax exemption for a certain percentage of capital invested (from 50 to 100 percent), as well as the free repatriation of capital and free access to the foreign exchange market. This is enabled by a banking system that operates using the national currency as well as foreign currencies.

As a consequence of the above, the flow of foreign direct investment has multiplied in recent years, making Uruguay one of only 20 countries in the world that has seen an increase in FDI per capita, according to an IBM Global Services ranking.

Likewise, the stability, strength and outlook of the Uruguayan economy helped the country achieve the highest average growth rate (11.2 percent) of investment in five years (for the period 2006-10). 2010 set a new growth record; but if the large projects announced so far come to fruition, 2011 will beat it handily.

Although the share of total investment in GDP reaches 20 percent, a high rate in terms of historical performance, it is still far from the rates of emerging Asian countries and from the government’s goal: the promotion of investment is still very important for the economic policy of the country.

In this scenario of sound growth, the main international rating agencies, Moody’s, Fitch and Standard & Poor’s, enhanced the sovereign debt rating, placing the country at the door of the investment grades.

Despite the slowdown of the international economy and the higher risks and challenges that emerging economies are facing – due to external pressures generating inflation, and internal pressures causing currency appreciation – the soundness of Uruguay’s economic foundation assures that the country will continue to grow at an ongoing and sustained pace in coming years.