•Press Release Economic Justice Elections Latin America and the Caribbean
Economic and Social Gains Made Prior to 2020 Are Being Reversed
Washington, DC — A new report from the Center for Economic and Policy Research (CEPR) examines the Uruguayan economy ahead of the second round of presidential elections on Sunday. The report, by CEPR researchers Joe Sammut, Jake Johnston, and Guillermo Bervejillo, finds that Uruguay experienced strong economic growth and poverty reduction during the period of Frente Amplio (Broad Front) governments from 2005 to 2020, when social spending was significantly ramped up. This was followed by a reversal of many of these gains under National Party leadership, due in part to the COVID-19 pandemic but also because of policy decisions.
“The parties on the ballot in Uruguay’s elections this Sunday definitely represent two very different economic paths,” report coauthor Joe Sammut said. “And it shows how big a difference economic policy can make: in raising living standards, reducing poverty, and increasing access to health care. Clearly the prior economic policies were much more successful than the most recent ones.”
The report notes that from 2005 to the beginning of 2020, Uruguay experienced a period of strong, inclusive growth that led it to be regarded as Latin America’s “success story.” Social spending increased from 18.5 percent to 25.8 percent of 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, giving Uruguay the distinction of the South American country with the lowest levels of poverty and inequality.
However, many of these gains have been reversed under the National Party-led administration since 2020. The Luis Lacalle Pou government faced a significant challenge with the COVID pandemic beginning just days after he took office, but his government’s policy decisions contributed to a slower recovery and a stagnation or worsening of social indicators — worse than in most of Uruguay’s regional peers.
The Lacalle Pou administration introduced a constrictive fiscal rule that meant spending less and reducing fiscal support faster than in neighboring countries. Spending was cut, with social spending decreased by over 3 percent of GDP from 2020 to 2023. Pandemic relief programs were phased out sooner than in neighboring countries, and monetary policy was tightened prematurely, with the policy rate rising before the end of the pandemic and six months before the US Federal Reserve began to raise interest rates.
As a result, Uruguay’s poverty rate is higher than it was pre-pandemic, unlike in most of Uruguay’s closest peers, and income inequality has increased, with the rich getting a boost in real income while the poorest 50 percent saw their real income fall by 16 percent.
The Lacalle Pou government also constrained wage growth and limited worker protections, including the right to strike, in contrast to higher minimum wage increases and the creation of wage councils under the previous Frente Amplio governments. Real wages have increased by just 3.1 percent, and the real minimum wage by just 1.7 percent, since the beginning of Lacalle Pou’s term in 2020 — the slowest rate of increase since 2004.
“There is much we can learn from the Frente Ampilo’s brand of redistributive economic policy and what it can deliver in terms of boosting economic growth and reducing poverty and inequality, perhaps especially in the midst of economic challenges,” report coauthor Guille Bervejillo said.
“The Lacalle Pou government has offered austerity at a time when many people need more support,” report coauthor Jake Johnston said.
