As a result of human capital oriented development, the economic system of Uruguay proved to be better prepared for the pandemic – the figures for the disease and death rates in the country have been much lower than those for most countries of South America in 2020.
In the context of the coronavirus crisis, it is important not only to analyse the direct anti-crisis response of various countries during this year, but also the efficacy of the economic development models that have existed in some countries for years and decades and that could help better resist the pandemic. The experience of Uruguay seems essential in this respect. Despite the high disease level in Latin America, Uruguay has demonstrated strong sustainability in healthcare and in the economic system as a whole in the face of an unprecedented crisis. It has performed well largely due to a sustainable economy and its orientation towards the development of human capital.
It is possible to reduce poverty and inequality, develop human resources and speed up economic growth even in unfavourable regional and global conditions. This can be seen in Uruguay which has managed to achieve impressive economic successes in the past decade despite global economic crises and the economic differences faced by its key trading partners, primarily Brazil and Argentina
For several centuries, Uruguay had higher living standards than other Latin American countries. It also had advanced systems of education and social support. Reputedly, Uruguay was the first Latin American country to establish a welfare system in which the wellbeing of the population at large was secured by relatively high taxes on businesses. Despite the rule of militaristic regimes in the past century (from the early 1970s until 1985 power was held by the military), Uruguay had developed democratic traditions that earned it the sobriquet “the Switzerland of Latin America.”
One of Uruguay’s achievements in human capital development was the reduction of gender inequality – the employment of females in Uruguay exceeds that in the ОECD by 5 percent. It is 10 percent higher than the average for Latin America. Despite some persisting signs of gender inequality (in part, in the differentiation of salaries), Uruguay looks much better than other countries in many indicators.
Over the past decade, Uruguay has focused on countering poverty and developing education and healthcare as key goals in its economic reforms. The poorest families were given allowances/transfers in the effort against poverty. Total social expenses were increased from 20 percent of the GDP in 2005 to 25 percent of the GDP in 2012. To fund higher social payments, the Government introduced a more progressive tax system (wealthier citizens had to pay higher taxes). In healthcare, almost the entire population of the country received access to medical services. The number of people who were covered by state medical insurance programmes increased almost three-fold.
In education, the Government carried out a number of programmes that were designed to broaden the access of young people to school and university education. Thus, a programme to give a computer to every elementary school student was instituted. When implementing reforms of education, in addition to introducing new information systems, the government established an auditing agency to raise the efficiency of the education system and reduce abuse.
As a result of the reforms of the past decade, the poverty level was brought down by almost 40 percent – from 31.3 percent of the population in 2003 to 19 percent in 2009. The levels of extreme poverty were reduced from 3 percent to 1.3 percent. The annual economic growth rate reached 6.6 percent in 2004-2008. Indicatively, the reduction of the economic growth rate to 2.9 percent in 2009 looked like an achievement against the backdrop of a substantial decline in the global economy and the majority of Latin American states. The acceleration of economic growth and improvement of the budget policy allowed Uruguay to reduce its gross national debt from 79.3 percent of the GDP in 2005 to 60 percent in 2009.
Democratic traditions and lower income differentiation level compared with most Latin American countries were one of Uruguay’s advantages. So called “inclusive economic growth” (economic growth that upgrades the living standards of the majority if the population) was Uruguay’s key guide for several decades. Indicatively, one of the lowest poverty levels in Latin America has been recorded in Uruguay since 1990s. The level of inequality in the income distribution was consistently decreased in 2008-2012 but still remained fairly high
– the wealthiest 1 percent of the population owned 14 percent of the nation’s revenue, which is above 10 percent, the average level of advanced countries. Later, the level of inequality was further reduced and went below the figures for Brazil, Chile, Argentina and the US.
As a result of human capital oriented development, the economic system of Uruguay proved to be better prepared for the pandemic – the figures for the disease and death rates in the country have been much lower than those for most countries of South America in 2020.
First published in the Valdai Discussion Club.
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