This chapter examines the post-Cold War Uruguayan finance and economic development. It explores both the theoretical and empirical structure of the country concerning the socio-economic philosophy and economic performance. The study uses the data collected from the World Bank from 1981-2019. The results of the study show that a significant short-run relationship exists between the dependent and the independent variables with deviation in the long-run equilibrium being offset in the present at a 62.84% speed in the short-run. It is recommended that Uruguay continue to make the country competitive to attract FDIs and also provide regulations to the financial system, both the money and capital markets, to enhance its gross fixed capital formation for local investments and savings and strengthen the currency.
Top1. Introduction
The Uruguayan financial and economic performance in the 1970s during the Cold War was adjudged to be relatively modest. According to the World Bank (1978), the Uruguayan economy achieved high rate of urbanization at 53%, relative even income distribution, high literacy rate with adult literacy at 94% and relatively low poverty index, as at 1975. Nevertheless, as a result of policy of transitioning from agro-based economy to an industrial state through import substitution industrialization (ISI), the economy of Uruguay suffered stagnation, which led to economic difficulties and increase in poverty. A comprehensive change in a country that can be ascribed to activities in an industry or economic policy/system is known as economic contribution (Watson, Wilson et al, 2007).
The Cold War saw the United States and its allies pitted against the defunct Union of Soviet Socialist Republic (USSR or the Soviet Union) and its own allies for more than 4 decades since the end of World War II till the collapse of the Soviet Union in 1991. Countries in Eastern Europe and Latin America were largely aligned with the USSR. These alliances were in the economic cooperation and financial integration. Technologically, both sides had relative cooperation, which assisted the transfer of technology and knowledge continuously, nevertheless, embargo on technology transfer by the United States and its Western allies dominated (Autio-Sarasmo, 2018).
Countries in some part of Asia, Africa and Latin America had employed ISI to attempt to leapfrog to industrialized societies from agro-based primary product nations, with limited success (Segal, 2021). ISI is primarily aimed at using fiscal instruments, like tariffs, subsidized credit to the productive sector, protection of infant industries and import quotas to safeguard and build up local manufacturing output. The economic policies were implemented side by side with social reforms – social security financing, income distribution and market efficiency borrowing from examples of social reforms in other countries (Mitchell, 1996). These reforms were of liberal structure.
Accordingly, government workers qualified for earnings-related benefits only after 10 years of employment, while retirement age was pegged at 45 for women and 50 for men. However, these inward-based state control policies were largely unsuccessful. The model did not lead to expected economic growth – the majority remained in poverty (Franko, 2018). As a result, a change in economic course began with the phased implementation of the market economy – financial liberalization and trade linearization.
The Cold War effectively ended with the collapse of the Soviet Union in 1991. At the end of the Cold War, Uruguay entered the trade liberalization phase of its socio-economic life. Collaboration with other Latin American countries (Mercosur) in a broad customs union agreement was integrated with a steady reduction in tariffs (Barrios et al., 2010). These initiatives resulted in reduction in inflation from a decade-long high rate as well as the rise in the value of the peso in relation with currencies of countries outside the Mercosur agreement.
Uruguay is a Latin American country bounded by the Pacific Ocean in the south, Brazil in the north and west as well as Argentina in the east. The economy is small compared to the surrounding countries; however, the country has remained politically stable and has outperformed its neighbours in spite of the economic volatility experienced in the region (The Economist, cited in Lanzilotta et al., 2018).
In this study, an evaluation of the dynamics of post Cold War finance and economic development of Uruguay would be undertaken. The assessment covers the period between 1991-2019; cutting across the various global events covering geo-political, socio-economic and financial dynamics.