URUGUAY HAS ALMOST TRIPLED ARGENTINA’S GROWTH |


Informe Nº: 11/04/2018

URUGUAY HAS ALMOST TRIPLED ARGENTINA’S GROWTH

In studies on economic and social development, Argentina appears as an atypical case because the systematicity and the depth of its decadence. Brazil, the other big country in the region, also cannot get out of mediocrity. Nowadays Brazil is immersed in an unprecedented process of political degradation that seems to deepen with the imprisonment of former President Lula.

Both countries, beyond their particularities, have been characterized by their inability to channel a sustained process of growth and social progress. Growth cycles fatally abort in crisis. The involution brings huge social costs and permanent frustration with its consequent resentments. Due to the size of Argentina and Brazil, there is a natural propensity to think that the prospect for the southern cone is very discouraging.

Is this a valid generalization or is there some other reason to be less pessimistic? ECLAC data on the evolution of gross domestic product per capita (GDP) measured in dollars at constant prices provide some evidence to this question. According to this source, between 2000 and 2016 GDP per capita measured in dollars in Argentina grew 24%. In the same period, neighboring countries of the southern cone showed the following performance:

  • In Brazil GDP per capita in dollars grew 22%.
  • In Chile it did by 50%.
  • In Uruguay it grew 62%.

These data confirm the poor performance of the Argentine and Brazilian economies. Especially if we take into account that the region enjoyed an unprecedentedly favorable international context, both due to the high prices of its exports and the very low interest rates. In both countries GDP per capita growth measured in dollars was just 1.3% annual average in the last 16 years. In contrast, Chile and Uruguay show better performances. The biggest surprise is Uruguay. A country with the size of an Argentine or Brazilian province, geographically incrusted between them and with high levels of integration with both giants of the southern cone, managed to expand its production almost 3 times more than Argentina and Brazil in the current century.

Growing at substantially higher rates generates more possibilities for progress for the population. In Uruguay, the inflation rate is 5% per year (5 times lower than in Argentina) and the incidence of poverty is 8% of the population (3 times lower than in Argentina). Chile also shows how growth allows for the resolution of social problems. If Argentina had emulated the productive performance of Uruguay and Chile so far this century, its poverty rate would be one digit nowadays.

The main attitudes that differentiate Uruguay and Chile from their large neighbors are less fiscal disorder, respect for institutions, consistency with strategies that increase productivity and a more systematic search for new destinations to export more sophisticated goods. As illustrated in a recent article in The Economist, while in the previous decade Argentina boasted of its prohibitions and taxes on meat exports to keep the domestic price low, Uruguay induced its livestock producers to adopt new technologies and implement traceability systems in order to break down sanitary barriers that many countries place on meat exports. The result is that today Uruguay exports more meat than Argentina.

Chile and Uruguay use very different strategies. In Chile prevails a more active market role, a smaller State and lower taxes. In Uruguay, on the other hand, the State is bigger and the tax pressure higher. This suggests that it is not the political orientations but rationality, seriousness and common sense that explain the better productive and social outcomes.

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