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URUGUAY AT A CROSSROADS: CONTINUED DECLINE OR A RETURN TO ECONOMIC
PROGRESS?  
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Joe Sammut, Guillermo Bervejillo, Jake Johnston
November 24, 2024
CEPR
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_ This issue brief examines the key social and economic stakes in
Uruguay’s November 24 presidential runoff. The election presents
voters with a choice between Yamandú Orsi of the Broad Front and
Álvaro Delgado of the National Party. _

, CEPR

 

Executive Summary

This issue brief examines the key social and economic stakes in
Uruguay’s November 24 presidential runoff. The election presents
voters with a choice between Yamandú Orsi of the Broad Front, who
advocates for a return to the progressive policy platform of
2005–2019, and Álvaro Delgado of the National Party, whose platform
reflects the austerity-driven approach Uruguay has adopted since 2020.

Under successive Broad Front governments from 2005 to 2019, Uruguay
experienced a period of strong, inclusive growth that is regarded by
many observers to be a regional success story. Social spending
increased from 18.5 percent to 25.8 percent of gross domestic product
(GDP), with new and extended cash transfer programs covering more than
30 percent of households, and major health-care reforms guaranteeing
equitable, universal access. These measures helped reduce poverty from
nearly 40 percent in 2005 to under 9 percent by 2019 and established
Uruguay as the South American country with the lowest levels of
poverty and inequality.

However, under the National Party–led administration — in office
since 2020 — many of these gains have been undermined. This
government, led by President Luis Lacalle Pou, faced a significant
challenge with the onset of the COVID pandemic just days after the
president took office. However, his government’s policy decisions
contributed to a slower recovery and to stagnation or worsening of
social indicators. Uruguay’s performance was, as a result, worse
than that of most of its regional peers.

The Lacalle Pou administration introduced a constrictive fiscal rule
that led to less increased spending and reduced fiscal support at a
rate faster than in neighboring countries during the pandemic. Primary
spending fell by 2 percentage points of GDP to 28.2 percent of GDP in
2021, and pandemic relief programs were phased out sooner than in
neighboring countries. Social spending dropped by over 3 percentage
points of GDP from nearly 28 percent in 2020 to 24.5 percent in 2023.
Monetary policy was also tightened prematurely, with the policy rate
beginning to rise before the end of the pandemic and six months prior
to the first interest rate hike by the US Federal Reserve. 

The poverty rate, which had risen with the onset of the COVID
pandemic, remains elevated above its pre-pandemic level, unlike in
most of Uruguay’s closest peers. Income inequality also worsened
significantly: Between 2019 and 2022, the real average post-tax and
transfers income of the richest 10 percent increased by 8 percent
while the poorest 50 percent saw their real income fall by 16 percent.

The Broad Front strengthened labor unions with the introduction of
wage councils, among other measures, and regularly increased the
minimum wage above inflation amounts, causing it to rise significantly
in real terms. By contrast, the Lacalle Pou administration has
restricted the right to strike and reduced minimum wage increases to
barely above the inflation rate. As a result, real
(inflation-adjusted) wages increased by just 3.1 percent and the real
minimum wage, 1.7 percent, since the beginning of Lacalle Pou’s term
— the slowest increases since 2004. 

The labor market has been one of the few bright spots in Uruguay’s
economic performance, with a change in the structure of the labor
market as well as the size of businesses, which increased the
percentage of the labor market employed in the formal sector. However,
this is likely due more to structural changes in the Uruguayan economy
rather than the result of policy measures. 

Uruguay’s November election represents a critical choice for its
future. Orsi and the Broad Front propose a return to progressive
social policies, including expanded cash transfer programs for poor
households and increased social spending to address rising
inequality.1
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Delgado, by contrast, offers continuity with the past four years, when
fiscal tightening, including cuts to social spending, was prioritized
over economic and social goals. With the election of Javier Milei in
neighboring Argentina, there is also the threat that radical right
elements within Delgado’s coalition, such as the far-right Cabildo
Abierto party, could be empowered, creating pressure for an even more
extreme economic policy. 

This election will have significant long-term implications.
Uruguay’s decision on November 24 will determine whether it seeks to
revive a model of inclusive growth or to continue on a path of fiscal
restraint that has, in recent years, widened social divides and
reduced economic gains.

Introduction

On November 24, Uruguayans will head to the polls for the second round
of presidential elections. Yamandú Orsi from the center-left Broad
Front (Frente Amplio — FA) coalition will face off against Álvaro
Delgado from the incumbent center-right National Party (Partido
Nacional — PN). The Broad Front held the presidency from 2005
through to the beginning of 2020, overseeing “robust economic growth
and socially liberal laws that raised Uruguay’s global profile”
following a period of economic instability.2
[[link removed]] During
this 15-year period Uruguay was frequently described as Latin
America’s success story. 

Luis Lacalle Pou, the son of a former president, was elected in 2019
for a nonrenewable five-year term under the banner of a coalition led
by the National Party that also includes the far-right Cabildo Abierto
party. Under Lacalle Pou, Uruguay experienced a challenging phase
marked by the global pandemic and its aftermath as well as an acute
water crisis exacerbated by La Niña in 2022–23. Lacalle Pou’s
administration has consistently prioritized fiscal constraint and
conservative labor market and pension reforms over reducing poverty
and other social welfare concerns. 

Voters will be facing a stark choice in November. Media coverage of
the ongoing electoral process has focused on the similarities between
the two candidates, but the economic and social developments that
Orsi’s and Delgado’s political movements have presided over paint
a different picture. 

Delgado’s election could threaten Uruguay’s steady advancement
toward a more prosperous and inclusive society. Today, Uruguay is one
of South America’s highest income countries on a per capita basis.
By the start of 2020 Uruguay had the lowest poverty rate and lowest
level of income inequality in South America on a continent plagued by
some of the world’s highest levels of inequality.3
[[link removed]] These
achievements were the result of a sustained series of policy actions,
including cash transfers to poor and marginalized groups, higher
social spending, and progressive tax reforms. Many of these advances
have been eroded or undone in recent years under Lacalle Pou’s
administration where Delgado served as Secretary to the Presidency, a
cabinet-level senior advisory role, until stepping down to begin his
presidential campaign. This issue brief looks at Uruguay’s recent
economic and social developments, contrasting policy measures, and key
indicators under the 15 years of Broad Front governance versus the
National Party governance since 2020. It reviews government decisions
that sparked a virtuous cycle of growth and redistribution and
assesses the subsequent efforts to reverse them. Referring to the
string of corruption scandals linked to the current government and the
crime situation, The Economist recently warned that “Uruguay is
losing its reputation as Latin America’s success story.”4
[[link removed]] As
this brief shows, this concern also applies to Uruguay’s recent
economic performance.

Growth: Economic Policies and External Factors

As was the case in much of Latin America, the late twentieth century
was a turbulent time in Uruguay, with elevated inflation, high levels
of debt, and flagging economic growth. For most of the nineteenth and
twentieth centuries, just two parties — the Colorado Party (PC) and
the National Party — had governed the country, with Uruguay only
recently transitioning from a civic-military dictatorship
(1973–1985).

IN 2004, IN A HISTORIC BREAK WITH URUGUAY’S LONG STANDING TWO-PARTY
STATUS QUO, TABARÉ VÁZQUEZ AND THE BROAD FRONT WON A LARGE POPULAR
MANDATE TO ADVANCE A COMPREHENSIVE PROGRESSIVE AGENDA OF SOCIAL AND
ECONOMIC REFORMS. Formed in 1971 as a far-reaching progressive
political coalition, the Broad Front won the presidency with a
resounding first-round victory. The new direction taken by the
Vázquez administration included a complete overhaul of the social
welfare system, tax reform, pension reform, financial regulation
reform, health-care reform, new competition and bankruptcy laws, a
major increase of the minimum wage, the institution of wage councils,
and measures in support of collective bargaining. This progressive
agenda was maintained and furthered under Vázquez’s successor José
“Pepe” Mujica (2010–2015) as well as during Vázquez’s second
administration (2015–2020).

UNDER THE BROAD FRONT, URUGUAY EXPERIENCED A 10-YEAR PERIOD OF HIGH
GROWTH BOTH FOR THE ECONOMY OVERALL AND IN TERMS OF REAL WAGES (FIGURE
1). However, growth slowed during Vázquez’s second term, paving
the way for the National Party’s return to power in 2020.

FIGURE 1: URUGUAY’S GDP AND REAL WAGES GROWTH HAS SLOWED

Source: IMF, 2024d; Uruguay Instituto Nacional de Estadística, 2024.

After his election in 2019, Lacalle Pou of the center-right National
Party began to undo the reforms implemented under the Broad Front.
After taking office in March 2020, his administration was marked by
the global COVID pandemic and the resulting recession. However, his
conservative policy choices, detailed below, contributed to a slower
recovery to the pandemic than Uruguay’s South American peers. 

Uruguay experienced improving terms of trade under the Broad Front and
under Lacalle Pou, indicating that policy choices, not just external
conditions, played an important role in determining the sharply
different growth patterns under the different administrations.
Uruguay’s economy relies heavily on commodity exports, especially in
the agricultural sector, and its high growth rates from 2005 to 2014
are generally attributed to the increase in commodity prices over that
time frame. However, Uruguay’s terms of trade5
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steadily increased during the twenty-first century, and while peaking
in 2020, they have remained above their average level throughout
Lacalle Pou’s administration (FIGURE 2) over the past 20 years or
so. The country’s purchasing power of exports6
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also reached historic highs in recent years as demand for the
country’s agricultural products has significantly increased due to
global events such as the war in Ukraine. Notably, this has remained
the case in spite of the serious drought caused by the La Niña
climate phenomenon, aggravated by global climate change, which
affected Uruguay’s agricultural output in 2022 and 2023.7
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FIGURE 2: URUGUAY HAS BENEFITED FROM STABLE TERMS OF TRADE IN THE LAST
COUPLE OF DECADES

Source: ECLAC, n.d. Note: Shaded area indicates period of Broad Front
governance.

Of course, the economy’s performance under Lacalle Pou was greatly
affected by the COVID pandemic, with -7.7 percent growth in per capita
GDP in 2020. Nevertheless, compared with other countries in the
region, Uruguay’s recovery from the pandemic has been lower than the
regional average (FIGURE 3). As Figure 1 illustrates, the recovery
from the pandemic has also seen very low growth regarding real wages,
which will be discussed in greater detail below. 

FIGURE 3: DURING AND FOLLOWING THE PANDEMIC, URUGUAY HAS PERFORMED
WORSE THAN MOST OF SOUTH AMERICA

Source: IMF, 2024d. Note: Venezuela is excluded as the IMF WEO does
not have data for these years.

Social Spending and Macroeconomic Policy

ONE OF THE MOST SIGNIFICANT DEVELOPMENTS DURING THE 15 YEARS OF BROAD
FRONT LEADERSHIP WAS THE STEADY INCREASE IN SOCIAL SPENDING (FIGURE
4). From 2005 to 2019, social spending as a percent of GDP increased
from 18.5 percent to 25.8 percent. 

Source: Uruguay Ministerio de Desarrollo Social, 2024.

THE BROAD FRONT SUCCESSFULLY INSTITUTED NEW CASH PROGRAMS AND REFORMED
EXISTING SOCIAL ASSISTANCE TO ADDRESS LONG-STANDING POVERTY. When the
Broad Front won the presidency in 2004, nearly 40 percent of
Uruguayans were living below the poverty line.8
[[link removed]] Addressing
this situation was the top priority for the incoming administration.
The new government created various cash transfer programs targeting
different segments of the population, including the Tarjeta Uruguay
Social (from 2006), the PANES emergency assistance program
(2005–2007), and the Plan de Equidad (from 2008). Earlier social
assistance programs such as the Asignaciones Familiares (Family
Allowances, created in 1943) and the Pensión a la Vejez
(noncontributory old age pensions, created in 1919) were reformed as
part of the Plan de Equidad to extend coverage to families and
individuals in the informal sector. 

These cash transfer programs achieved one of the highest coverage
rates in Latin America. By 2017–2018, 30.5 percent of people were
living in households that were recipients of at least one cash
transfer program.9
[[link removed]] This
was higher than Argentina (26.7 percent), Brazil (26.9 percent), and
Paraguay (12.4 percent) and was only surpassed in Latin America by
Bolivia (59.9 percent) and the Dominican Republic (32.5 percent).10
[[link removed]] Cash
transfer programs sometimes fail to reach the poorest households;
however, by 2019, Uruguay had achieved 94 percent coverage of those
below the extreme poverty line — the highest rate among Latin
American countries with comparable programs, where the regional
average was 48 percent coverage.11
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In 2007, the Broad Front government also established the National
Integrated Health System (SNIS), paid for by the newly created
National Health Insurance (SNS), representing a major expansion of
public health care and integrated public and private providers into a
network to ensure equitable, universal access to health care.12
[[link removed]] Collectively,
the Broad Front’s reforms constituted a major expansion of the
welfare state and caused poverty rates to fall dramatically, to 9.7
percent by 2015 and 8.8 percent in 2019, their last year in
government.

IN CONTRAST, WHILE SOCIAL SPENDING ROSE IN 2020 AS PART OF THE
GOVERNMENT’S INITIAL PANDEMIC RESPONSE, IT WAS CUT BACK SHARPLY IN
BOTH 2021 AND 2022 AS THE NEW ADMINISTRATION OF LACALLE POU
IMPLEMENTED FISCAL AUSTERITY, CEMENTED BY THE ADOPTION OF A NEW FISCAL
RULE, WELCOMED BY THE IMF.13
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new government also introduced a series of conservative reforms to
social policy, the most important of which was a 2023 reform of social
security that will gradually raise the retirement age from 60 to 65.14
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The policy response to the pandemic and the ensuing recession was also
more limited than was the case with many of Uruguay’s peers, with
smaller spending increases due to the constraints imposed by the new
fiscal rule. Pandemic support programs were withdrawn sooner in
Uruguay than in neighboring countries. The government created one new
cash transfer program (the Canasta de Emergencia) and increased the
size of the social benefits paid in two existing programs (the Plan de
Equidad Social and Tarjeta Uruguay Social). But the increases to
coverage and benefit size were modest compared with other Latin
American countries, according to an analysis by the UN Development
Programme.15
[[link removed]] All
three of the modified or new cash transfer programs were available to
6 percent or less of the population and provided additional benefits
of less than 10 percent of monthly per capita GDP.16
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from Trinidad and Tobago, all other countries that introduced or
modified cash transfer programs either had higher additional payments
or made the program available to a broader segment of society.17
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Other policies included extending unemployment benefits, sectoral
subsidies, and tax deferrals for heavily affected industries. Overall,
the primary deficit widened by 1.6 percentage points to -2.1 percent
of GDP from 2019 to 2020 (TABLE 1). This was driven by increased
primary spending (excluding interest payments) of 1.8 percent of GDP.
This spending increase was more modest than in the other countries of
the Southern Cone and was smaller than the Latin American average.
From 2019 to 2020, spending in Chile increased by 2.4 percent of GDP,
in Argentina by about 6 percent of GDP, and in Brazil by 3.8
percentage points. 

TABLE 1: RELATIVE TO MUCH OF THE REST OF THE REGION, URUGUAY SPENT
LESS AND FOR LESS TIME DURING THE COVID PANDEMIC (% OF GDP)

Source: IMF, 2024a. Figures are for general government except for
Uruguay which is nonfinancial public sector (NFPS). Note: Paraguay,
not shown here, saw primary spending increase by 2.4 percent of GDP
from 2019 to 2020 at the central government level (IMF, 2024a, 5
[Table 1]).

LACALLE POU’S COVID FISCAL SUPPORT — ALREADY MODEST IN SCALE —
WAS RAPIDLY WITHDRAWN, EVEN BEFORE THE END OF THE PANDEMIC. Overall
primary spending fell by 2 percentage points to 28.2 percent of GDP in
2021; it then rose slightly to 28.6 percent of GDP in 2023 and is set
to rise to 29.2 percent in 2024. Social spending, on the other hand,
fell by over 3 percentage points of GDP from almost 28 percent in 2020
to 24.5 percent in 2023, beneath the pre-pandemic rate of almost 26
percent. 

This tightening was deemed necessary to comply with a new fiscal rule
introduced by Lacalle Pou’s administration and approved by
Uruguay’s right-wing dominated legislature.18
[[link removed]] The
new fiscal rule consists of limits to the size of the deficit, to
primary expenditure growth, and to the net debt ceiling.19
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severe fiscal framework rapidly reduced the net debt ratio, from 57.3
percent of GDP in 2020 to 51.6 percent of GDP in 2022 — about the
same level it had been in 2019.20
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interest payments at about 2 percent of GDP, an argument can be made
that the prioritization of this goal over other key vital needs was
excessive.21
[[link removed]] This
new fiscal rule had negative ramifications in other areas, including
in economic growth and in the slow progress of reducing poverty, which
remains above pre-pandemic levels (see below). 

AFTER THE FIRST CONFIRMED CASES OF COVID IN 2020, MONETARY POLICY
SHIFTED TO AN EXPANSIONARY STANCE, with the rate of growth of the
monetary base increasing by 11 percent in the second quarter of 2020,
double what it had been in the first quarter.22
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were also reductions in reserve requirements, and the government
extended an existing public credit guarantee scheme to facilitate
credit to small- and mid-sized enterprises.23
[[link removed]] These
expansionary policies mitigated the impact of the pandemic recession.
One modeling analysis estimated that the output gap would have been
about 1.4 percentage points wider without this expansionary policy.24
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MONETARY POLICY STARTED TIGHTENING EARLY. In September 2020 the
Central Bank (_Banco Central del Uruguay_) shifted to using the
interest rate as the main instrument of policy, with an initial
reference rate of 4.5 percent.25
[[link removed]] Starting
in October 2021 — almost six months ahead of the US Federal Reserve
and well before the end of the pandemic — Uruguayan authorities
began raising rates, with the policy rate peaking at 11.3 percent in
2022. The Central Bank then began reducing rates, to 9 percent in 2023
and 8.5 percent currently, though as inflation has come down, the real
rate has actually increased.26
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policy has contributed to the trimming of headline inflation rates,
which fell from a peak of 8.3 percent in 2022 to a projected 5.5
percent in 2024.27
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negative monetary shock was likely one of the most important
determinants of Uruguay’s lackluster growth of just 0.4 percent in
2023 (output is forecast to expand at a faster clip of 3.2 percent in
2024).28
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Wages

A MAJOR INSTITUTIONAL CHANGE UNDER THE BROAD FRONT WAS THE
REINTRODUCTION OF SECTORAL WAGE COUNCILS. In 2005, the administration
reinstated tripartite collective bargaining — comprising of
government, employer, and union representatives — and over the next
years, union density went from about 10 percent to almost 40
percent.29
[[link removed]] Uruguay’s
sectoral wage councils, through these tripartite negotiations that set
sector-specific minimum wages with inflation adjustments, have
contributed significantly to wage growth, a reduction in income
inequality, and protections for low-wage workers. Successive Broad
Front administrations also regularly increased the national minimum
wage with above-inflation increases, causing it to rise sharply in
real terms over their time in office. The Lacalle Pou administration,
however, has weakened worker rights, including limiting the right to
picket during strikes.30
[[link removed]] Through
the implementation of the fiscal rule, his administration has also
limited public sector wage growth. 

FIGURE 5 shows indices for the real average salary and the real
minimum wage since 2006. The minimum wage grew markedly by about 30
percent in real terms over Vázquez’s first term and Mujica’s term
(2005–2015); it then grew another 10 percent during the second
Vázquez administration (2015–2020). It stagnated in real terms,
however, under Lacalle Pou, with the value of the minimum wage ending
up at about the same level it had been at the beginning of his
mandate. 

FIGURE 5: REAL WAGES AND THE REAL MINIMUM WAGE HAVE STAGNATED IN
RECENT YEARS

Source: Uruguay Instituto Nacional de Estadística, n.d.b, n.d.c.

THERE WERE DRAMATIC INCREASES IN REAL WAGES UNDER THE BROAD FRONT,
ESPECIALLY UNTIL 2015; THE PICTURE SINCE HAS BEEN MORE MIXED. Since
2015, average wages went through two growth cycles, growing solidly in
real terms from 2016 to late 2017 and from mid-2022 to the beginning
of 2024. Real wages at the end of the Vázquez administration were on
average 4.4 percent higher than they had been at its beginning, with
the minimum wage over 9 percent higher. While higher than GDP growth,
these increases were markedly slower than the rate of growth under the
first Vázquez government and the government of Mujica. However, real
wages fell sharply in the early years of the Lacalle Pou presidency,
wiping out much of these gains. Uruguay’s post-pandemic rebound
since 2022 led to real average wages and the real minimum wage ending
at, respectively, 3.1 and 1.7 percent higher than they were at the
beginning of Lacalle Pou’s term; these are the smallest increases of
real wages since 2004.

Employment and the Informal Economy

UNEMPLOYMENT AND THE PERCENTAGE OF THE LABOR FORCE WORKING IN THE
INFORMAL SECTOR FELL SHARPLY UNTIL 2013 (FIGURE 6). From the middle
of the 2010s, while the informal sector remained steady, unemployment
began to gradually tick upward until the pandemic. The pandemic caused
not only a sharp fall in the employment rate and in the rate of
informality but also a further, sharper rise in unemployment. This
pandemic-related fall in the rate of informality can be explained by a
disproportionate number of informal workers leaving the workforce
during the period. As a member of the Ministry of Labor’s technical
team put it, “the pandemic shock destroyed more informal than formal
jobs”; the fall in informality was not due to more inscriptions into
the social security registry.31
[[link removed]] This
followed a similar pattern to other countries in the region. However,
unlike in the rest of Latin America, informality did not rise to its
pre-pandemic level after the end of the pandemic. Rather, in Uruguay
the reduction seems to have been sustained primarily through
structural changes in the economy. In particular, the pandemic shock
led to a shift away from micro-enterprises toward larger firms and a
shift away from sectors that tend to be more informal like domestic
services and construction toward sectors that tend to be more formal
such as public administration. Other factors, like policy, played a
role but were less important.32
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FIGURE 6: INFORMALITY FELL UNTIL 2015 AND HAS FALLEN FURTHER SINCE THE
PANDEMIC

Source: Uruguay Instituto Nacional de Estadística, n.d.e. Notes:
Seasonally adjusted by author using the US Census Bureau SEATS
program. The rate of informality is the sum of the two series
“Subempleo no registro” and “No registro (no subempleados).”
The employment rate is the share of the working age population.
Workers who are not registered are those who are not enrolled in
social security; this is measured by asking survey respondents whether
they have the right to retire in their workplace and is used as a
proxy of informality.

Across 2021 there was a sustained recovery of employment. Following
the end of most pandemic restrictions in the middle of that year,
there was also an increase in the percentage of workers in the
informal sector, albeit not to the level that it had been prior to the
pandemic. The rate of informality has not evolved significantly in the
latest month for which there are data (August 2024), showing that the
gains made in this area during the pandemic have not fully receded. 

Poverty: A Reversal After 15 Years of Progress

POVERTY RATES ROSE DURING THE PANDEMIC AFTER 15 YEARS OF MAJOR
REDUCTIONS; THE SHARE OF THE POPULATION IN POVERTY IS STILL HIGHER
THAN BEFORE 2020. FIGURE 7 shows the poverty and extreme poverty
headcount rates for Uruguay using the national poverty line since
2006. It shows a rapid decline from 2006, when poverty was 32.5
percent (or about a third of the population), to 9.7 percent in 2014.
From 2014 to 2017 there were smaller falls, with a slight uptick in
the last few years of the 2010s to 8.8 percent by 2019. The pandemic
recession pushed poverty up to 11.6 percent, a level it had not been
at since 2013. After falling a percentage point to 10.6 percent in
2021, it has stayed at about that level since, ending at 10.1 percent
in 2023, the last year that we have data for. This is a poor rate of
improvement since 2020, especially regarding the rapid advances made
in the preceding two decades and the improved external position of the
Uruguayan economy as seen in Figure 2 above. 

FIGURE 7: POVERTY RATES HAVE NOT FULLY DECLINED TO WHERE THEY WERE
PRIOR TO 2020

Source: Uruguay Ministerio de Desarrollo Social, n.d.a, n.d.b. Note:
Shaded area indicates the Lacalle Pou administration.

UNDER LACALLE POU, URUGUAY IS NO LONGER THE SOUTH AMERICAN COUNTRY
WITH THE LOWEST POVERTY RATES AND HAS LOST THE TOP SPOT TO
CHILE. FIGURE 8 shows the poverty rate at the $6.85 level
(considered to be the threshold for upper middle-income countries) for
a selection of South American upper middle-income and high-income
countries, the latter category being comprised solely of Uruguay and
Chile.33
[[link removed]]

FIGURE 8: SINCE THE PANDEMIC, URUGUAY HAS SHOWN SLOWER PROGRESS IN
REDUCING POVERTY THAN ITS NEIGHBORS

Source: The World Bank Group, 2024.

The period from 2015 to the beginning of 2020 was a difficult five
years in South America and was marked by worsening terms of trade,
with some countries experiencing economic and political crises. As
seen in Figures 1 and 2, per capita GDP growth in Uruguay rose at an
annual rate of just 0.8 percent as growth in the purchasing power of
exports stagnated. Despite these difficult conditions, poverty fell
slightly over this period, reaching 5.1 percent in 2019, 0.9
percentage points less than it had been in 2015. As a result, Uruguay
joined Paraguay as the only country in the Southern Cone to see falls
in poverty over the 2015 to 2019 period, with Argentina and Brazil
seeing poverty rise — and in Argentina’s case, substantially.34
[[link removed]]

Most countries (except Brazil) saw a substantial rise in poverty in
2020, an undoubted effect of the sharp pandemic recession. However,
the recovery from the pandemic until 2022 has been uneven across the
region. Chile and Argentina — the two countries most similar to
Uruguay in terms of per capita income — both made considerable
progress in reducing poverty. Alberto Fernández’s Argentina made
progress despite the difficult macroeconomic situation. In Chile the
poverty rate fell below the level it had been prior to the pandemic
and became the country in the region with the lowest rate of poverty,
overtaking Uruguay. Uruguay has mostly stagnated in terms of its
progress in reducing poverty, with a rate of 6.4 percent in 2022,
markedly higher than the rate of 5.1 percent in 2019. 

Income Inequality on the Rise

ON INCOME INEQUALITY, LACALLE POU’S ADMINISTRATION ALSO REVERSED
EARLIER PROGRESS. FIGURE 9 shows the ratio of pre- and post-tax and
transfers average per capita income of the top 10 percent to the
bottom 50 percent. Both series show rapid improvements in achieving
greater income equality starting in 2007. The average pre-tax income
of an individual in the top 10 percent of the population went from 21
times the average income of an individual in the bottom 50 percent to
about 13 to 14 times between 2012 to 2019. Post-tax and transfers, the
same ratio went from 17 in 2007 to about 10 from 2012 to 2020. 

FIGURE 9: RATIO OF AVERAGE PER CAPITA INCOME OF THE TOP 10 PERCENT TO
THE BOTTOM 50 PERCENT

Source: WID.WORLD, n.d. Note: Both the pre-tax and post-tax indicators
are average income, equal split in constant (2023) Uruguayan pesos.

HOWEVER, THIS POSITIVE EGALITARIAN PROGRESS WAS REVERSED FROM 2020,
WITH A WIDENING GAP BETWEEN RICH AND POOR. From 2019 to 2022 the
average real post-tax income of the richest 10 percent increased by 8
percent while for the poorest 50 percent average real income fell by
16 percent. This was slightly greater than the change in pre-tax
income where the average real per capita income increased by 6 percent
for the richest 10 percent and fell by 12 percent for the poorest 40
percent. 

There is no disaggregated income data available after 2022, but the
Uruguayan National Statistical Institute (Instituto Nacional de
Estadística) has released the Gini index, another measure of income
inequality, for 2023. This index increased slightly from 0.389 in 2022
to 0.394 in 2023, which indicates that the income distribution became
slightly more unequal.35
[[link removed]]

In terms of the regional picture, using data from the World Inequality
Database (which combines household survey data with data from the
national accounts and tax returns), most Latin American countries saw
increases in income inequality over the period 2019–2022. However,
sources that just use household survey data such as ECLAC and SEDLAC,
show declines in income inequality for most countries, with
Uruguay’s performance as an outlier. This indicates that Uruguay’s
rise in income inequality over the period is robust even when data
from other income inequality databases are used. 

Conclusion

Despite Uruguay’s reputation as a Latin American success story,
recent years have seen notable shifts in its economic and social
landscape. Under the leadership of successive Broad Front
administrations (2005–2020), Uruguay saw progressive reforms that
contributed to growth, poverty reduction, and falls in inequality.
These gains, however, have been undercut since 2020, as conservative
fiscal and social policies were enacted under the National Party’s
Lacalle Pou administration. While global crises, including the COVID
pandemic, posed significant challenges, Uruguay’s conservative
policy responses exacerbated economic difficulties, leading to a
slower recovery, stagnating real wages, and rising inequality.

References

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Pagano. 2015. _Improving Health System Efficiency – Uruguay:
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———. 2020a. Informe de Política Monetaria: Segundo trimester
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———. 2020b. Informe de Política Monetaria: Tercer trimester
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ECLAC. _See _United Nations Economic Commission for Latin America
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———. 2024b. Paraguay: 2024 Article IV Consultation, Third Review
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———. 2024c. Uruguay: 2024 Article IV Consultation – Press
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———. 2024d. World Economic Outlook – All Issues. IMF,
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———. 2024e. World Economic Outlook Database: October.
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M24. 2024. “Conocé las 48 propuestas de gobierno que presentó
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seguridad.” M24, September
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Oyhantçabal, Gabriel. 2019. “The Political Economy of Progressive
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Stampini, Marco, Pablo Ibarrarán, Carolina Rivas, and Marcos Robles.
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Uruguay Instituto Nacional de Estadística. n.d.a. “Indicadores de
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Hogares. [link removed].

———. n.d.b. “Índice Medio de Salarios (IMS).”
GUB.uy. [link removed].

———. n.d.c. “Índice de Precios del Consumo (IPC).”
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———. n.d.e. “Presentación presentar la metodología de la
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Notes

* M24, 2024.
* The Associated Press, 2024.
* The percentage of the population living on under $6.85 per day was
just 5.1 percent in 2019, the lowest on the continent. Post-taxes and
transfers, the highest income decile received 10 times the income of
the poorest 50 percent in 2019, which was somewhat lower than the
ratio of 13 in Argentina and much lower than other neighbors where it
was north of 20 (WID.WORLD, n.d.; The World Bank Group, 2024). 
* The Economist, 2023.
* This indicator tracks the relative price movements of exports and
imports of a country and is defined as the unit value of exports of
goods divided by the unit value of imports. 
* The purchasing power of exports index measures how much a
country’s exports can buy in terms of imports, adjusting for price
changes over time.
* Between the last quarter of 2022 and the second quarter of 2023,
agricultural output was about 25 percent lower on a year-on-year basis
(IMF, 2024c, 37).
* Using the 2006 poverty line applied retrospectively (which is the
same line as used in Figure 7), see Uruguay Instituto Nacional de
Estadística, n.d.d, 79 (Graph 10).
* Cejudo, Michel, and de los Cobos, 2020, 9.
* Cejudo, Michel, and de los Cobos, 2020. Figures includes
recipients of noncontributory pensions. 
* The Latin American average is unweighted by population size and is
the mean of 17 countries: Argentina, Bolivia, Brazil, Chile, Colombia,
Costa Rica, Dominican Republic, Ecuador, Guyana, Honduras, Mexico,
Panama, Peru, Paraguay, El Salvador, Suriname, and Uruguay (Stampini
et al., 2021).
* Arbulo et al., 2015.
* IMF, 2022.
* On October 27, a reform to the pension system proposed by
Uruguay’s main labor-union confederation was rejected in a
referendum. The proposed reform would have reduced Uruguay’s pension
age back to 60 and would also have made other major changes to the
pension system. Neither Orsi nor Delgado supported the proposed
reform.
* Cejudo, Michel, and de los Cobos, 2020.
* Cejudo, Michel, and de los Cobos, 2020, Graph 3.
* Cejudo, Michel, and de los Cobos, 2020.
* It, along with other measures in the Ley de Urgente
Consideración, was subject to a referendum in March 2022 in which it
was narrowly upheld.
* Uruguay Ministerio de Economía y Finanzas, 2023.
* IMF, 2024c, 32, nonfinancial public sector; IMF 2022.
* Notably, the external debt burden was also not a major constraint
as interest payments on the external debt averaged only about 1.5
percent of exports from 2020 to 2024 (IMF 2024c). 
* BCU, 2020a, 12.
* Bucacos et al., 2023. 
* Output by the end of 2020 would have been -5.5 percent from the
trend as opposed to -3.9 percent from the trend (Bucacos et al.,
2023).
* BCU, 2020b.
* IMF, 2024c, 31 [Table 1]; BCU, n.d.
* IMF, 2024c.
* IMF, 2024e.
* Oyhantçabal, 2019.
* El Observador, 2021.
* Brum, 2022, 2, author’s translation.
* Matías Brum (2022, 4) estimates that public policies that offered
public employment to vulnerable workers would have had a maximum
possible effect of reducing informality by 1.1 percentage points (out
of a fall of informality of about 3 percentage points), but the real
impact was undoubtedly lower.
* One issue with national poverty lines is that they are not
directly comparable with data from other countries. For this we can
turn to the poverty headcount rates calculated by the World Bank in
purchasing power parity terms.
* Chile does not have a data point after 2017 until 2020.
* The Gini index describes the ratio of the area between a
country’s income distribution curve and a line of perfect equality
over the total area below the line of perfect equality. And so, as it
approaches one it indicates increasing inequality while if it
approaches zero it indicates increasing equality of income (Uruguay
Instituto Nacional de Estadística, n.d.a).

_JOE SAMMUT is a Senior Research Fellow at the Center for Economic and
Policy Research in Washington, DC. He received his PhD in political
science from Queen Mary University of London. He also holds an MPhil
from the University of Oxford and a BSc from the London School of
Economics._

_His research interests include the politics of development and
equitable growth in middle income economies, international financial
institutions, and US foreign policy towards Latin America._

_Originally from Uruguay, GUILLERMO BERVEJILLO is a former researcher
at CEPR. Prior to that, he worked as an economist at Policy Matters
Ohio where he completed a State Policy Fellowship sponsored by the
Center on Budget and Policy Priorities. Guillermo holds a Ph.D. in
economic geography and bachelor’s in economics from The Ohio State
University as well as a master’s in geography from the University of
British Columbia in Vancouver. He has studied and written about the US
taxation system, antitrust economics, trade between China and Latin
America, the geopolitics of global soy markets, and the academic
publishing industry. Guillermo also has a long-standing commitment to
community organizing in Ohio: he was a founding member, organizer, and
researcher for the Ohio Student Association. In Washington DC,
Guillermo interned at the Center for American Progress and was an
economic research analyst at the Antitrust Division of the US
Department of Justice._

_JAKE JOHNSTON is a Senior Research Associate at the Center for
Economic and Policy Research in Washington, DC. Jake Johnston has a
B.A. in Economics from Boston University and an M.A. in Writing from
Johns Hopkins University. At CEPR his research has focused
predominantly on economic policy in Latin America, the International
Monetary Fund and US foreign policy. He is the lead author for
CEPR’s Haiti: Relief and Reconstruction Watch blog and his articles
and op-eds have been published in outlets such as The New York Times,
The Nation, The Intercept, Le Monde Diplomatique, Boston Review, and
Al Jazeera. His book, Aid State: Elite Panic, Disaster Capitalism,
and the Battle to Control Haiti [[link removed]], is
now available from St. Martin’s _

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