Uruguay: an economic assessment of the Broad Front government

Since 2005 Uruguay has been governed by the Frente Amplio (Broad Front), which is circumscribed within the “progressive” governments of the continent that came to power as a result of the people´s struggle against the neo-liberal governments that sought to benefit financial capital with their different measures.

Every process in each country shares general features with the others, but has its particularities. That is clear in the Uruguayan case, since, unlike most Latin American processes, the Frente Amplio is not a recent construction and has a long history. It was originally born as an anti-oligarchic and anti-imperialist force, was conformed by various sectors and classes that opposed imperialism, and, in a certain historical period, was a true reflection of the needs for change.

The economic policies of the Frente Amplio

During its administration, the Frente Amplio has maintained a course of economic policy based on the investment of private international capital as “motor of development”, continuing in general terms with the economic policy of the governments of the traditional parties, with greater social policies that were made possible by the surplus generated by the high prices of exported raw materials.

Our country has maintained and deepened its insertion in the world market as a producer of raw materials, increasing its dependence on the world’s centers of power. The socio-economic model is based on the legal framework developed during the neo-liberalism of the 1990s. In this sense, it maintained the Forestry Law (1987), the Free Zones Law (1987), the Law 16.233 that reduced the minimum term of land leases (1991), the Law of Ports (1998), the Law of Promotion and Protection of Investments (1998), and the Law of Social Security (1995), among others.

The Frente Amplio not only maintained this neo-liberal legal framework, but also passed laws such as the Law on Public Private Participation, the reduction of tax on capital by lowering the IRAE rate from 30% to 25%, as well as the laws of ownership of rural properties No. 18,092 and 19,283 that accelerated the foreign ownership of land. Administratively, the exoneration of capital and the concession of new free zones were taken to historical figures, representing, by 2016, a tax expenditure of 1800 million dollars per year. We see then that, despite the discourse of the Frente Amplio, there is a consensus with neo-liberal policies.

The increase in international prices of raw materials as well as the arrival of foreign capital in the country since 2004 generated an increase in GDP to new levels, reaching its peak in 2014 (57,444 million dollars). At this juncture real wages increased, at the same time as private consumption was promoted through the extension of credit. At the beginning of the period greater union freedoms were established, social assistance programs were developed that allowed the establishment of a social consensus that gave the government some social base, and giving the idea that the progressive era was “here to stay” and that the progress of all the population within a “humane” and “well managed” capitalism is possible.

This was done by presenting the figures in a general way, leaving aside the fact that the big capitalists of the country enriched themselves several times more than what was distributed to the rest of the people. The background of this was the handing over of the country to foreign capital and the adaptation of the national economy to the needs of big international capital.

The investments that entered the country have been directed fundamentally to the purchase of lands and productive units that, until then, had belonged to national capitals; to the construction sector with a focus on functional infrastructure works, to industries that export raw materials and to high end housing. It has been, in general, a process that has tended toward the alienation of national assets and the expansion of financial capital throughout the national economy.

Afforestation had a strong rise in the last twenty years, going from 53,000 ha in 1990 to close to 1,000,000 ha today. Three foreign companies: Forestal Oriental / UPM, Montes del Plata and Weyerhauser (which has just sold their forests) controlled about 70% of the total forest area last year.

The Brazilian capitals that came to the country through FDI went on to control the meat industry of Uruguay by managing 48% of the slaughter houses and 60% of exports; 50% of the rice industry and the entire production of malts and beers (AMBEV group).

In the last twelve years, the number of hectares planted with soybean has multiplied by eleven, reaching about 1,100,000 ha, making it the main agricultural crop. This brought about the massive use of agro-toxins (their imports increased by 120%) and seeds, generating a high dependence on foreign imports, as well as problems of pollution in rivers and streams.

After the first two governments of the Frente Amplio, Uruguay turned into a country with a primary economy, exporting primary products and importing industrial products both for consumption and for capital. In turn, the companies that produce the main products that the country exports are in the hands of foreign capitals.

Times of austerity

We’re at the end of the bonanza cycle for the scheme of international insertion of progressivism, international interest rates are on the rise, causing the arrival of foreign investments to slow down. Meanwhile, previous investments, incorporated into the productive apparatus of the country, stop investing and begin a stage of extracting profits from the investments they have already made. At the same time, international prices of raw materials fall and stabilize, in a scheme in which a small and dependent country is not able to exert any influence.

In countries that produce raw materials with little added value, such as ours, the main variable of austerity is the workers’ wages. Both the wages directly associated with the extraction and transportation of raw materials, and the indirect wages that are associated costs -this includes the expenses of the state budget- are all variables that capital seeks to decrease to increase its rate of profit.

The current Frente Amplio government has guided its economic policy to fully meet the needs of capital since 2015. From the beginning of the period, the need to “not lose competitiveness” at the international level and “maintain growth” was installed. These are concepts that the bourgeoisie uses when it seeks to increase the extraction of surplus value by lowering the price of the labor force. That means wages.

By unloading the crisis on the working class and breaking its electoral promises, the pro-capitalist character of the government is made clear. It builds its neo-liberal policy, which aims to maintain the payments of interest on the external debt and maintain the subsidies and exonerations to big national and foreign capital.

Rating agencies evaluate the debt issued by governments or companies and inform the owners of financial capital if it is worth investing in them or not. Those evaluated aspire to reach the category of investor degree, that indicates that the risk of default of payment is low. In dependent countries, the evaluation ends with recommendations for measures that ensure the recovery of invested capital and profitability.

In 2014 the International Monetary Fund proposed to reduce inflation to the center of the target range of the BCU, “a strategy aimed at reducing the retrospective indexation of salaries” and reduce the fiscal deficit to 2.5% of GDP over the next five years”. Indeed, the government followed these indications to preserve the inflow of foreign capital and continue financing the State’s accounts by issuing debt, instead of taxing the income of capital. The IMF recommendation regarding the de-indexation of wages and the reduction of public investment to “consolidate” the accounts was also taken into account.

In this way, the government puts on the people the weight of subsidizing capital, allocating a large part of the surplus generated by workers to the payment of foreign capitalists who own 75% of the public debt. The resources allocated to the payment of interest and debt approved in the last rendering of accounts point out that, in 2019, the government will spend 1436 million USD in payments of interest and 1126 million USD in payments of capital of the debt.

Instead of adjusting the accounts against capital, the fiscal deficit is financed with more debt, making interest payments go from 2.8% of GDP in 2014 to 3.4% in 2016. The fiscal rearrangement was directed against the people, presenting a project of accountability in the Executive power that includes budget cuts in education and health care.

Economic cycles are inherent to capitalism. Though the government can attribute the economic crisis to external factors, it can not deny its choice: faced with the dilemma of deciding where to discharge the effects of the crisis, it chose to consolidate the benefits of capital and apply the austerity plan on working people.

Progressive governments: the nice face of capitalism

The progressive governments have coincided in a rhetoric against the United States, with a speech of social justice proposals against neo-liberalism, but in fact they maintained the economic structure, promoted the arrival of large foreign investments, developed social welfare policies and increased the average salary of the workers, because they enjoyed a decade of high prices of the raw materials they exported, but they left unchanged and entrenched the interests and benefits of the capitalists.

In no case did they eliminate the capitalist nature or the ties of dependence with the great capitalist countries such as the US, China or Russia. They promoted policies that seek to replace neo-liberalism with other pro-capitalist policies, placing the state at the service of capital and multinationals.

Today we can see the end of the cycle of progressive governments, that failed in the eyes of the popular sectors that had trusted they would bring social changes and solutions to the problems that afflict them. Today, in the face of the crisis, reality strikes and illusions vanish, facts are stronger than words and it is clear that the process of progressivism does not lead to social change toward a more just society.

In Compromiso Socialista, we understand that the failure of the ideas of the progressive governments is not the failure of the left options, it is not the failure of socialism, but the failure of what progressivism really is: a reformist proposal that does not seek eliminate the true root of capitalism.

A collaboration from Compromiso Socialista of Uruguay