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Australia and Uruguay enjoy friendly relations based upon a number of shared interests and cooperation in a range of multilateral fora. Like Australia, Uruguay is a significant agricultural producer and exporter. Through membership of the Cairns Group, Australia and Uruguay cooperate in the World Trade Organization to advance global reform of agricultural markets.

We also work together on issues relating to the Antarctic, especially in efforts to address illegal fishing through the Convention on the Conservation of Antarctic Marine Living Resources (CCAMLR).

Australia's Ambassador to Argentina has non-resident accreditation to Uruguay. Uruguay maintains an Embassy in Canberra. 

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The Spanish first arrived in Uruguay in 1516, though fierce resistance from indigenous inhabitants helped postpone full Spanish settlement until the early 18th century. Following secession from Spain in 1811, Uruguay was annexed by Portugal to its Brazilian territories. In 1825, Uruguay declared independence from Brazil, and in 1828 the country became fully independent under the Treaty of Montevideo. During the rest of the 19th century there were a number of minor conflicts with neighbouring states, coupled with considerable inflows of (mainly European) immigrants.

Throughout much of the 20th century, Uruguay's two main political parties, the centrist Colorado and National (Blanco) parties, have alternated in power. A military regime assumed control in 1973 – against a background of increasing social and economic turmoil – and remained in power until 1985. The legacies of twelve years of military rule included an economy in severe decline and lingering human rights issues. Democracy was re-installed in 1985, with the election of Colorado Party candidate Julio Sanguinetti. Successive administrations worked to consolidate democracy and stabilise the economy.

Since the return to democracy in 1985, successive governments have worked to consolidate Uruguay's democratic institutions and stabilise the economy. Uruguay is divided into 19 "departments" with limited local self-government, and the political system is based on a strong central Executive branch, subject to legislative and judicial checks. No member of any branch of government can simultaneously perform official duties in another branch.

The Executive branch comprises the President, Vice-President and Cabinet of Ministers. The President and Vice-President are chosen by direct popular vote for one five-year term (consecutive re-election is not permitted), and the ministers are appointed by the President. The Legislative branch consists of a bicameral Parliament, comprising the Senate and the Chamber of Representatives. The Senate is made up of 30 senators selected by direct popular vote for a five-year term. The Chamber of Representatives is made up of 99 deputies, also chosen by direct popular vote for a five-year term.

In the Presidential elections of 31 October 2004, Tabare Vázquez, leader of the left-wing Encuentro Progresista – Frente Amplio (EP-FA) opposition coalition, won by a wide margin. During his 2005-2010 five-year term, Vázquez's EP-FA coalition had a working majority in both chambers of the Uruguayan Parliament. However, tensions between the moderate and radical wings of the EP-FA coalition resulted in dilution of some elements of the government's program of economic and social reforms.

Uruguay's historically close relationship with neighbouring Argentina has been tense in the last three years, as a result of the construction in Uruguay of a cellulose pulp mill by Finnish firm, Botnia. Argentina claimed the mill would pollute border waters and took the issue to the International Court of Justice (ICJ) in 2006, arguing Uruguay breached the Treaty of the Río Uruguay, which requires prior consultation between the neighbours on activities affecting border waters. The pulp mill started operation in November 2007, and attention is now focused on the ICJ, whose ruling on the issue is expected later this year. 

Political Outlook

Following voting in the second round of Presidential elections on 29 November 2009, EP-FA candidate José Mujica was sworn in as President on 1 March for the term 2010-2014. Both in his time as Vázquez's agriculture minister (2005-2008) and in campaigning for the presidency, Mujica has gravitated to the political centre, consistently preaching moderation and placing practicality, continuing economic growth and consensus-seeking above any ideological standpoint.

Mujica's centrist shift was borne out in his cautious selection of ministers for his cabinet, prioritising professionalism and continuity. Mujica's cabinet appointments also sought to ensure a balance of power between the governing coalition's numerous factions, in particular its radical and moderate wings. Mujica's ability to take over his predecessor's role as peacemaker and ultimate arbiter in the coalition will be critical to the success of his government. 

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Uruguay's economy is highly dependent on agriculture and the economic cycles of its close trading partners, Argentina and Brazil. Uruguay was severely affected by the crises in Brazil (1999) and Argentina (2001) and faced a painful recession in 2002-2003.

Membership of regional trading bloc Mercosur provides Uruguay with preferential trade access to the markets of Brazil, Argentina, Paraguay and Venezuela (in addition to Chile, Colombia, Ecuador, Peru and Bolivia, which have associate membership of Mercosur). However, Uruguay has expressed dissatisfaction with the trading benefits that Mercosur has provided, and has mooted external FTAs (an idea opposed by its Mercosur partners as inconsistent with Mercosur rules).

Recovery since the 1999-2002 economic recession has been consistent and strong. Real GDP growth reached an estimated 8.9 per cent in 2008 and 2.2 per cent in 2009, led by consumption and investment. Public finances are in a healthy state. The local currency appreciated markedly in the first half of 2008 (before the advent of the international financial crisis), reflecting solid foreign investment inflows and export earnings. Foreign direct investment has increased substantially in recent years, particularly in agriculture, forestation and tourism.

Recent economic growth has been broadly based, and the commerce, agriculture and livestock sectors have recovered well following the 1999-2002 recession. Initially this was due to growth in Brazilian and Argentine import demand as these countries recovered from their own economic crises; however, more recently the sectors have been buoyed by growth in the volume and value of Uruguay's agriculture and livestock trade with the United States. Tourism is also a growth industry, accounting for a significant proportion of Uruguay's GDP and employment. The Botnia pulp mill, the largest foreign investment project in Uruguay's history, is providing a significant boost to the national economy. Planning for several other similar projects is underway.

GDP growth is set to recover slightly in 2010 from an estimated low of 2.2 per cent in 2009. The recovery in commodity prices is expected to have a mixed effect on Uruguay. Although rising international oil prices will not benefit Uruguay (which imports all of its oil), growing commodity prices will increase earnings from Uruguay's agricultural exports, stimulating private consumption and investment.

Economic and Trade Policy Directions

In December 2006, Uruguay fully repaid its outstanding debt to the IMF. Since then, the government has continued to follow the orthodox economic program it originally agreed in a three-year Stand-By Arrangement with the Fund in 2005.

The new government appears intent on ensuring the continuity of the market-friendly policies of the 2005-09 administration, which focused on economic growth, strengthening its fiscal position, cutting public debt, steering inflation towards a target range and attracting foreign investment. As a sign of this commitment, Mujica appointed Mr Fernando Lorenzo as the new Economy Minister. Lorenzo is an economist by training and was chief macroeconomic advisor for former Economy Minister Astori. Lorenzo has announced he will seek to increase private investment as a share of GDP to 25% by 2015 - an ambitious, albeit necessary goal for a small country such as Uruguay. The previous administration was able to increase the share of investment in GDP from 11.3% in 2004 to 17.7% in 2009, helped by projects in the cellulose, agriculture, forestry, communications and logistics industries.

The challenges for the new economic team will be to reduce the budget deficit (1.7% of GDP in 2009) while containing public-sector workers' wage demands, maintaining high levels of social spending and increasing investment in infrastructure in a context of recovering growth. GDP growth in 2010 will likely be sustained by a rebound in domestic demand, strong trading links with Brazil, the region's largest economy, and Mujica's plan to boost infrastructure expenditure in railways, ports, telecommunications and energy (to reduce reliance on expensive oil imports) though public private partnerships.

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The Minister for Trade, the Hon Simon Crean MP, visited Uruguay from 19 to 21 April 2010. Mr Crean co-chaired the Cairns Group Ministerial Meeting with Uruguayan Foreign Minister, Mr Luis Almagro, and the Ministers signed an MOU on Strengthening Bilateral Trade and Investment.

The first bilateral Australian parliamentary delegation visit to Uruguay took place in July 2007. The delegation – hosted by the Uruguayan Parliament –held discussions with the International Affairs Committee of the House of Representatives, and senior Uruguayan Government authorities, including the Foreign and Agriculture Ministers.

Recent bilateral cooperation and exchange has included an Australian expert from the Sustainable Minerals Institute in Queensland travelling to Uruguay to provide advice to the Uruguayan Mining and Environment Ministries, and a three-month internship with ABARE by an economist from the Uruguayan Rural Association. Both activities were supported by the Council on Australia Latin America Relations. Following severe flooding in Uruguay in mid-2007, the Australian Embassy in Buenos Aires donated US$50,000 at the request of the Uruguayan Government for relief efforts. 

Bilateral economic and trade relationship

Australian imports from Uruguay totalled around $A18.3 million in 2009 and included food products, iron and steel tubes and pipes and pharmaceutical products. Exports to Uruguay totalled $A11.1 million in 2009 and mostly included vegetable materials, wool, chemical products and textile and leather machinery. Exports of simply transformed manufactures (STMs) to Uruguay have increased in recent years.

Australia and Uruguay participate in the CER-Mercosur Dialogue, bringing together Australia, New Zealand, Brazil, Argentina, Paraguay and Uruguay. The dialogue was established in 1996 as a mechanism to strengthen cooperation on global trade policy issues and to promote inter-regional trade and investment.

Export opportunities

Similarities in the primary exports of Uruguay and Australia present opportunities for the export of Australian agriculture-related technology and services. One strategy for Australian companies looking to invest and trade in Uruguay is to extend existing interests they may have in Argentina and Brazil. The close commercial ties that these countries have with Uruguay, especially through Mercosur, may help facilitate entry into the Uruguayan market.

Other areas for potential Australian export growth include tourism and education.

Australian Investment Activity

Australian business presence in Uruguay is limited. There is Australian related investment in areas such as dairy products, entertainment and logistics services.

Hoyts has a joint venture with a local operator and has invested in two multiplex cinema complexes. Brambles Industries offers pallet and container pooling services through its local subsidiary, Chep.

The Uruguayan Government is pressing ahead with its plans to develop the country's mining sector. In 2008, international companies operating in South America, including Australia's Globe Uranium, responded to the Uruguayan's call for expressions of interest in uranium exploration. After calling for tenders in late 2008, the government commenced offshore hydrocarbon exploration and production in 2009 - this may be of interest to Australian companies.

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Last Updated: April 2010

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