Uruguay Faces Economic Crossroad

Sources: Latin News, Merco Press, New York Times

In an attempt to gain influence in South America, the United States has recently presented the government of Uruguay with an offer to join in a free-trade agreement, much to the disdain of Mercosur’s newest member, Venezuela.

Mercosur (short for Mercado Comun del Sur, or Southern Common Market) is a regional trade organization that is headquartered in Montevideo, Uruguay. With a population of around three million, Uruguay is often overshadowed by its significantly larger trade partners—particularly Brazil and Argentina. However, in light of Washington’s recent offer and the staunch objections coming from the Venezuelan government, Uruguay is presently garnering more attention.

Venezuelan President Hugo Chavez has asserted that if Uruguay pursues closer economic ties with the United States, it would weaken Mercosur and would amount to submission to American interests. Hoping to sway Uruguayan sentiment, Chavez has offered incentives: The Venezuelan President has subsidized major Uruguayan industries, such as sugar plants, that have not been profitable but are essential due to the number of people they employ; he has also pledged to invest approximately 500 million dollars in a new Uruguayan oil refinery. In addition, he has proposed partnering the state-owned oil companies of Uruguay with Venezuela in joint petroleum exploration. But some say it will not be enough.

Although the United States’ proposal to build medical and dental facilities in a working-class section of Montevideo (Uruguay’s capital) may appear paltry in comparison, the boost to Uruguay’s economy that could result from a fair-trade agreement with Washington has the potential of amounting to billions of dollars—a far greater amount than Venezuela is capable of offering or producing. While anti-Bush sentiment is acute in the nations comprising Mercosur, President Chavez’s desire to form a Mercosur Army, reminiscent of NATO, has been met with opposition in those countries due to the oppressive and militaristic dictatorships of the 1970s and 1980s.

Will the fear of political abuses of power in the region, combined with the attraction of increased exports and foreign investments lead Uruguay to form closer ties with the United States and to shift away from its economic reliance on Mercosur neighbors? Or, will Uruguay’s ruling party agree with President Chavez and attempt to steer Mercosur in a direction of economic opposition to the United States? Is there a middle ground for Uruguay?