The Economy - the Sanguinetti Government

The Economy - the Sanguinetti Government

The civilian government that entered office in 1985 inherited an economy whose fundamental elements had not changed a great deal for many years. The economy was still based on agriculture. In 1988, midway through the Sanguinetti government's term of office, livestock, crop production, and fishing generated only 13 percent of GDP directly. But the largest industries in Uruguay-- food processing and textiles--depended on agricultural inputs. Thus, the link between agriculture and industry, which generated 33 percent of GDP in 1988, was strong. Another inescapable feature of the economy was the central role of government. Uruguayan national statistics included the government, which comprised not only agencies such as the Ministry of National Defense and the postal service but also, within the service sector, a large commercial bank and several insurance companies. The entire service sector, including activities such as private banking, transportation, and tourism, accounted for 42 percent of GDP. The external sector, i.e., activities involving foreign trade, generated the remaining 12 percent of GDP.

The record of the Sanguinetti government was moderately successful. The administration entered office facing an economy just beginning to recover from a severe recession. That recovery continued, as real GDP growth averaged over 5 percent per year during the administration's first two full years in office. During 1988 and 1989, however, real GDP growth nearly ceased. In other areas, the record was similar. Unemployment fell from 13 percent in 1985 to 9 percent in 1987 but was reduced no further. Inflation fell at first, then increased again.

The lack of sustained economic progress during the late 1980s was not simply a result of the Sanguinetti government's policies, however. The government and the private sector inherited many serious difficulties in the mid-1980s: the growing external debt, a large government bureaucracy in deficit, a burdensome social security system, and a weakened currency. Because they could not immediately change these features, the government and the private sector chose to begin a cautious policy of readjustment. Fundamental restructuring was again delayed.

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