Chapter 3. Political Environment
Nature of Political Relationship with the U.S.
Relations between the United States and Uruguay are excellent. Uruguay is a constructive participant in international fora. The government of Uruguay took an active role in the 1994, 1998 and 2001 Summits of the Americas and follow-up working groups, and vigorously supports the establishment of a Free Trade Area of the Americas. The U.S. and Uruguay cooperate on a wide range of issues, including counter-narcotics, technology, defense, and the environment. In 2002, they established a Joint Commission on Trade and Investment to explore ways to facilitate the expansion of trade and investment.
Major Political Issues Affecting Business Climate
Upon taking office on March 1, 2000, the centrist government of President Jorge Batlle (Colorado Party/Lista 15) introduced an extensive legislative program to address some of the country’s most pressing problems. The principal opposition to the government’s programs comes from the Encuentro Progresista - Frente Amplio (EP-FA), a grouping of leftist parties and factions, and from the national labor confederation, PIT/CNT. However, all of the major parties are committed to democratic principles and a mixed economy with private sector participation.
Relations between Federal, Executive and State Leaders
In general, relations between the Executive Branch and the departmental governments (Intendencias) are good. Departmental governments have the ability to set local tax rates, and receive assigned portions of the national budget submitted to Congress for approval by the Executive Branch. Intendentes, the leaders of the departmental governments, regularly meet to share ideas and to decide on specific issues to be negotiated with the Executive Branch. Thirteen out of nineteen Intendencias are held by the Blanco Party, five are affiliated with the Colorado Party, and the Intendente of Montevideo is from the EP-FA Party.
Brief Synopsis of Political System, Elections and Orientation of Major Political Parties
Uruguay is a constitutional democracy with an elected president and parliament. The country is divided into nineteen departments (states), including Montevideo, the capital.
National elections are held every five years. The next general elections are scheduled for October 2004. The first round of national elections, in which the president, vice president, senators and deputies are elected, is held on the last Sunday in October of the election year. To win, a presidential candidate must obtain a minimum of 51% of all votes cast. The system provides for a run-off to be held on the last Sunday in November if no presidential candidate obtains a simple majority in the first round. Elections for the Intendentes of the departmental governments take place on the second Sunday in May in the year following a national election year. Up to two candidates per party may be nominated.
The president may not stand for immediate re-election, but may be re-elected after at least one term out of office. Intendentes may be re-elected only once in a row. There is no limit on the number of times that senators and deputies can be re-elected. All elected offices are for a five-year term. A five-member Supreme Court heads the Judiciary, one of the most independent in Latin America. Departmental governments have budgetary independence from the central government, and may set local tax rates.
The 1999 election results produced a parliament divided among the three main political forces. The two traditional parties, Colorado and Blanco (National), have existed in their present form for almost one hundred years. The third, Encuentro Progresista - Frente Amplio (Progressive Encounter - Broad Front), a leftist coalition of various parties and factions, was founded in 1971. Factionalism within parties makes defining their orientations somewhat difficult. Nevertheless, the following general observations hold true:
Colorado Party: The Colorado Party was the traditional party of the urban areas, including Montevideo, and, until it was usurped by the EP-FA, the party of the working class. President Jorge Batlle, who belongs to the party’s Lista 15 faction, supports free market economics and less government participation in the economy. Ex-President Julio Maria Sanguinetti, a self-proclaimed social democrat who advocates gradual economic reform while protecting basic Uruguayan sectors such as agriculture, leads the party’s largest faction, the Foro Batllista. Contrary to the party’s traditional principles of upholding state-owned and state-controlled enterprises, recent Colorado administrations have opened the economy to foreign investment, offering state services on a private concession basis, and eliminating some state monopolies.
National (Blanco) Party: The National Party is the traditional party of Uruguay’s rural interior, and has been in the minority for most of its existence. There were only three Blanco administrations in the 20th century, with the 1990-95 administration of President Luis Alberto Lacalle being the most recent. The Lacalle administration unsuccessfully attempted to privatize a number of state-owned enterprises. While party ideology runs from fiscal conservatism to populism, the largest faction favors economic reform and free enterprise. The National Party fared poorly in the 1999 presidential and parliamentary elections, but later won local elections in 13 of the 19 departments.
Encuentro Progresista-Frente Amplio (EP-FA): The leftist coalition, which captured 40% of the vote in 1999, advocates a redistribution of wealth through the reduction of the value-added tax (now 23%) combined with the institution of a personal income tax. It supports the retention of state enterprises, but wants to reduce their size through attrition. It favors weakening the country’s bank secrecy laws and increasing bank supervision. The party favors strengthening MERCOSUR for both economic and political reasons. The EP-FA won the capital’s municipal government for the first time in 1989, and its candidate was reelected in 1994 and 1999. During its administration of Montevideo, the EP-FA has raised land and property taxes significantly, and has contracted out services such as garbage collection, and park maintenance to private companies on a concession basis.