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Uruguay: Maintaining Social Equity in a Changing Economy


Uruguay FY01 PA

Full Report (8.5Mb PDF)

Uruguay has made substantial progress on poverty and social indicators since the mid-eighties, largely due to its extensive social policy and relative macroeconomic stability in the 1990s. The country's social performance now ranks among the best in Latin America, with many characteristics close to those of industrialized countries. Uruguay is notable for its very low level of extreme poverty and for having one of the most equitable distribution of incomes in the Region. Many of Uruguay's progressive social policies serve as a useful model for other countries struggling with problems of poverty, equity, and social development.

Notwithstanding these major achievements, reduction in poverty is highly dependent on growth, and pockets of poverty and unemployment still exist and in recent years have shown some increase. While the country experienced strong growth and a decrease in poverty during the early nineties, a major recession in 1995 and the ongoing restructurin,g of some sectors of the economy contributed to job losses, particularly in manufacturing, changing labor demands, and a rise in poverty and income inequality. Again in 1999, the country suffered through a difficult recession brought on by the devaluation in Brazil, recession in Argentina, a serious drought, and fall in international commodity prices.

A critical combination of weak demand, low skills, and high family dependency among the poor puts them in a position of vulnerability and risk. By and large, a dual strategy of improving the investment climate, and enhancing growth and investing in human capital via education and other means of building capacity will go a long way in assisting Uruguay's poor. The Government should thus continue to emphasize these measures. Nevertheless, circumstances have changed in Uruguay, and two new phenomena are emerging requiring special attention. The first is the increasing concentration of the poor in specific neighborhoods which contributes to their marginalization: this process adds tensions and challenges to poverty reduction and implies changes in the kinds of social services and the way they are delivered. The second is that the needs of particular vulnerable groups are becoming more pronounced: for example, children have become a significant portion of the poor with about 40 percent of Uruguay's children born into poor families, pointing to a potentially serious problem of inter-generational poverty.

Other vulnerable groups include inactive youths, teenage mothers, female head of households, unemployed adult males between 40 and 50 years of age with low or obsolete skills, and women 50 years or older, especially widows in precarious situations And, while data are lacking, the concerns facing Uruguay's rural poor should not be forgotten. These groups can have poverty rates considerably higher than estimates for the overall population and reaching these poorest of the poor may require changing conventional social programs. In comparison with other developing countries, the magnitude of these groups may not be great, as these groups only account for a small share of the population, but given Uruguay's past, this increase in social problems raises concern. There are, moreover, enormous opportunities for addressing the problems given that they are still manageable in scope and depth.

This report focuses on understanding key issues related to poverty, vulnerability and social policy in the context of a changing Uruguayan economy. Because the country is highly urbanized (90 percent), and data on rural areas are scant, most of the analysis in this study focuses on urban areas. Chapter 1 presents a profile of poverty and its trends in the nineties using household survey data. Chapter 2 looks at changes in the structure of the economy and the link with problems of unemployment, underemployment, and labor insecurity over the past decade. Chapter 3 focuses on the specific issues of marginalization and vulnerability based on a qualitative study carried out in poor urban neighborhoods surrounding Montevideo. Chapter 4 analyzes Government social expenditures, with particular emphasis on how effective these expenditures are at reaching the poor and meeting the needs of vulnerable groups. Background papers with detailed analysis are also available under separate cover. Policy recommendations are included in this summary. 

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