San José State University
Thayer Watkins
Silicon Valley
& Tornado Alley

Economic History and
Current Economy of Uruguay

Although Uruguay is a small country in terms of population and land area it is an important case for study because there was a conscious attempt over many decades to create a European style welfare state. In the 1940's there was general satisfaction with the welfare-state policy but in the 1960's a continued support of the welfare state in the face of a decrease in revenue led to relatively large deficits and subsequently inflation. The economic turmoil led to political turmoil. The urban guerilla movement known as the Tupamaros pushed the civilan authorities into allowing the military free reign in suppressing the guerilla movement. Subsequently a military coup in 1973 took full control of the government and maintained political repression for twelve years. Although the military dictatorship ended in 1985 full democracy was not restored until 1990.

In 1990 Uruguay had a population of about 3 million, of which 1.4 million were in the labor force. But that 1.4 million, not all of whom were working, had to support a pensioned population of 650 thousand. The economic and fiscal difficulties of the situation were enormous.

History of Uruguay

The early history of Uruguay is quite complicated because it involves the Spanish and the Portuguese Empires and their successor republics and a number of factions therein. The territory that is now Uruguay is on the eastern side of the Uruguay River. In the 1500s that location along with the fact that it contained no precious metals but did contain implacably hostile native tribes made it uninteresting to the Viceroyalty of the Rio de la Plata. In addition there was the problem of a possible conflict with the Portuguese of Brazil. Therefore there was no significant development of the region in the 1500s. The major city of Montevideo was not founded until 1624. When development within the Spanish Empire did come, it was as much from a fear that the Portuguese might extend their empire to the banks of the Rio de la Plata and complicate Spanish trade with the interior, as from any attraction of the territory.

In the colonial period the territory that is now Uruguay was known as the Eastern Bank (Oriental Banda) and even today the official name of the country is the Eastern Republic of the Uruguay (República Oriental del Uruguay). Although there was no precious metals the land and the climate were ideal for raising cattle and sheep.

Time Line of Uruguayan History Since European Contact

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