Uruguay’s Freer Approach Has Severely Limited the Pandemic While Protecting the Economy

We are not talking enough about Uruguay. That small South American country boasts impressive results in its handling of the coronavirus. It is also signaling that it wants to prosper and that it understands more freedom might be the way to go about it.

Under president Luis Lacalle Pou, Uruguay has suffered a very low number of deaths from coronavirus (23 as of June 15) and the number of confirmed cases (848) is small. At no point did the government decree a national quarantine, preferring instead to let individual responsibility, guided by accurate and transparent information that originated from a team of scientists and experts, do the trick.

Rather than shut down the economy (80 percent of it kept going) and send the police or the military to arrest people, as was done in some other countries, the authorities, in coordination with civil society, put an emphasis on testing (proportionally, they are only behind South Korea in the number of tests as a percentage of confirmed cases) and briefly isolating those who had Covid-19. The external borders were shut, but the internal borders were kept open.

Uruguay’s government made it clear it would not fund its fiscal response to the trying circumstances through money-printing, large debts or higher taxation, but through reductions in public spending, particularly the money paid to politicians. There was pressure from within the governing coalition and the powerful left-wing opposition known as Frente Amplio (Broad Front) to engage in huge fiscal profligacy and make businesses pay for it, but President Lacalle explained that it was from private enterprise and capital that the economy would come back and that strangling businesses with regulations and more taxes would hinder that effort.

Wasting little time, Uruguay has announced a campaign to attract foreigners by making it much easier for them to become a fiscal resident of their country. Those who take up residence in Uruguay will not pay taxes for five years, after which time they will not have to pay a wealth tax on their foreign holdings and will only pay an income tax of 12 percent on the gains obtained from those assets. The fear in neighboring Argentina, where a demagogic government is destroying an economy that was already in dire straits, is that 44 million Argentines—the entire population—will settle across the border. (Uruguay has a population of only 3.4 million.)

When President Lacalle took office less than four months ago, the odds did not point in the best direction. He inherited a significant fiscal deficit and an economy that was barely growing. He governs with the help of a broad coalition that includes a range of ideas and interests, and whose backbone is made up of two traditional parties that have not shed all of their old ways. On top of that, the left, which held power for fifteen years before Lacalle defeated them, did much better than expected in the runoff election and continues to exert enormous pressure on the political system.

To top it all, only days after he took office, Lacalle had to deal, as had everyone else around the world, with the worst pandemic in generations. It is admirable that he was able to keep his cool throughout this crisis and, more importantly, that the crisis has only strengthened his resolve to put common sense back at the center of Uruguay’s politics and economy.

Uruguay was a highly developed country in the 19th and early 20th centuries. There is no reason why it cannot become Latin America’s great success story in Latin America in the way Portugal has become Europe’s shining star in recent years. Having so many times been disappointed by promising governments, I will keep my fingers firmly crossed for them.

Alvaro Vargas Llosa is a Senior Fellow at the Independent Institute. His Independent books include Global Crossings, Liberty for Latin America, and The Che Guevara Myth.
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