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Volume 61 / Social Sciences

ECONOMICS: PARAGUAY AND URUGUAY


CAROL WISE, Associate Professor of International Relations, School of International Relations, University of Southern California


THE OVERRIDING THEME of the latest literature on Argentina, Paraguay, and Uruguay concerns the struggles of these three members of the Southern Cone Common Market (Mercosur) to cope with the demands of microeconomic adjustment. As the Argentine economy rebounds from the trauma of the 2001 devaluation and the government's default on 144 billion US dollars in publicly held debt, the authors reviewed in this chapter raise persistent and piercing questions about the country's microeconomic foundations. These queries concern the sustainability of the recent economic recovery, as the failures of microeconomic reform during the 1990s are now widely considered to be the Achilles' heel of the Convertibility Plan. Similar concerns are raised in the publications on Uruguay, which has suffered its own share of adjustment difficulties as well as lingering contagion from the recent Argentine crisis. The one reading on Paraguay reflects the country's continuing struggle to jump start market reforms, let alone build a sustainable momentum (item #bi2003000484#).

ARGENTINA

The material on Argentina is both retrospective and prescriptive. The former consist of analyses of specific industries and sectors, as well as assessments of the overall competitiveness of the export sector during the past decade (item #bi2003006908#). The latter focus on the remaining reform gaps with regard to labor markets and human capital investments, and the still pressing challenge to rationalize the fiscal and administrative relationship between the federal government in Buenos Aires and the state governments.

At the sectoral level, Argentine agribusiness is by far the most competitive branch of the domestic economy. Agribusiness exports have largely led the recent recovery; a testimony to the technological modernization of this sector, which, in turn, has spurred brisk productivity and competitive gains (items #bi2003000584# and #bi2004000569#). This pattern of innovation has been slow to emerge in other important sectors, such as automobiles (item #bi2003001764#) and electricity (item #bi2002006867#). Competitive gains in the auto industry have been hampered by an overly protectionist regime within Mercosur, and by the Argentine government's failure to offer incentives that could strengthen this sector's productive potential. Future projections for the Argentine electric sector are alarming, as policymakers privatized the country's energy sector in the early 1990s without ensuring that the necessary infrastructure would be built or expanded to meet the country's needs. Already, the threat of energy shortages has hampered the ability of industrial production to fully recover.

While some of these analyses offer policy prescriptions, much of the concrete advice is expressed in the literature on labor markets, human capital investment, and social policy. This is to be expected, given Argentina's double-digit unemployment rates from 1995 onwards, the concomitant compression of real wages, and the stark disintegration of the social safety net. The continuing imbalance between the domestic labor supply and diminished labor demand is a central theme of this literature (items #bi2002005277#, #bi2002007040#, and #bi2002004700#). The associated cluster of problems includes rising inequality; deepening poverty rates; and the persistence of a highly ineffectual social strategy, combining a patchwork of coverage that falls seriously short of "universal" and a more recent deluge of "targeted" social programs that fail to address the underlying structural unemployment problem (items #bi2002004083# and #bi2003001799#). Across these works the implicit consensus seems to be that addressing these social and labor problems, as well as the country's more general competitive shortcomings, is a necessary condition for a sustained economic turnaround.

URUGUAY

The recent literature on Uruguay addresses the very similar challenges of income inequality, stagnant real wages, and the general slump in Southern Cone labor markets (items #bi2003000019#, #bi2003004220#, and #bi2003004222#). At the same time, some of the country's top economists have offered important analyses of the impact that Brazilian and Argentine macroeconomic volatility has had on this much smaller Mercosur partner. Uruguay's own 2001–02 banking crisis is explained in this context, as is the uneasy fluctuation in the exchange rate (items #bi2003000018# and #bi2003000016#). One especially compelling analysis details Uruguay's multilateral options for trade and investment diversification (item #bi2003000020#), although the country's high level of dependence on the Mercosur market suggests that this is still the most efficacious path forward. The task, it seems, is for all four of the member countries to strive harder for the kinds of macroeconomic coordination that has thus far dominated much talk, but produced little concomitant action, within Mercosur.

PARAGUAY

Finally, there is the case of Paraguay, where domestic politics has slowed the pace of economic reform to a crawl. Nowhere is this more evident than in the country's patchy efforts to launch a credible privatization program (item #bi2003000484#). As a result, this last work reads more like a reform manual than an analysis of the inroads made. Ironically, despite its status as the laggard reformer in Mercosur, Paraguay has participated actively as a member of this regional bloc and is committed to reaping the gains from integration. Thanks to the most recent round of elections, the country is now witness to the most professional economic team that has managed it yet. This bodes well, both for the launching of a serious reform effort, and for Paraguay's ability to increase its gains within Mercosur as a result of the current policies.

I would like to extend my deep appreciation to Julia Oates-Ulrich, doctoral student at the School of International Relations, USC, for her indispensable contribution to this chapter.


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