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FY 1998 Country Commercial Guide: Uruguay

Report prepared by U.S. Embassy Montevideo, released by the Bureau of Economic and Business Affairs, August 1997*.

I. EXECUTIVE SUMMARY

Uruguay has traditionally been a market-oriented economy, but since 1990 it has accelerated on the liberalization track. Liberalization has had the support of two administrations and has included Southern Common Market (Mercosur) integration, reducing deficit spending, downsizing government and controlling inflation.

During 1996 two important economic reforms were implemented--Social Security reform and National Government reform. The former will convert the highly deficit-ridden public system into system of both public and private providers and should stimulate capital market operations and national savings. The latter is designed to eliminate redundant functions of the central government and divest some non-essential activities.

GDP decreased by 2.0 % in 1995 following a fiscal adjustment and the "tequila" crisis but grew 4.9 % in 1996, finishing the year with a value of US$ 19.0 billion. Government projections indicate a 3.0 % growth for 1997, while analysts and international organizations expect stronger growth.

Despite continuing to be among the highest in Latin America, the inflation rate has maintained a steady decline for the last six years. Inflation decreased from 130 % in 1990 to 22.0 % in April 1997 (on a 12 month basis), which was the lowest rate since 1982. Private analysts believe that the government's target rate of 15 % is possible. Single digit inflation is projected for 1998.

In 1996 Uruguay's exports increased 13.8 %, imports rose 16.0 % and the trade deficit was US$ 713 million. Traditionally high trade with neighboring Argentina and Brazil (Uruguay's Mercosur partners along with Paraguay) increased even more with integration into Mercosur. In 1996, the Mercosur partners accounted for 48 % of total exports while imports from Mercosur accounted for 44 % of total imports. Trade with Paraguay is growing fast but represents a small portion of total trade. In 1996, the United States bought 7.0 % of Uruguay's exports and provided 12.0 % of the country's imports.

The combination of 1996 deficits in the trade and current accounts--US$ 713 and US$ 296 million (or 1.6 % of GDP), respectively-- with a surplus capital account (US$ 156 million), resulted in a US$ 144 million gain of net international reserves. Net international reserves (US$ 1.93 billion) will be more than enough to pay total net external debt service over the next three years.

Uruguay improved its risk classification by Europe's IBCA and U.S.' DUFF&PHELPS for long-term debt issued, reaching the investment grade status that applies to economies that are safe for investment. The upgrading enables the country to receive pension fund investments from the U.S.

II. ECONOMIC TRENDS AND OUTLOOK

Major Trends and Outlook

In November 1994, Dr. Julio Maria Sanguinetti (of the Colorado Party) was elected President. So far his administration has pursued the liberalization his government inherited from the previous administration. His coalition government implemented a three-stage stabilization program consisting of an immediate fiscal adjustment package to ease the burden of the "tequila" crisis and reduce inflation, a medium-term program for government downsizing, a medium/long-term program for social security reform and a long-term educational reform. He also has advocated more privatization and deregulation, giving the private sector access to many activities previously reserved for the State.

Central Administration Reform

The Central Administration Reform is eliminating redundant functions and divesting non-essential activities. Primary targets to eliminate 25% of the government's offices and to reduce the number of central government employees by 10,000 (from 40,000) will be partially achieved by June 1997, when 50 government offices will have been reorganized and 7,200 public jobs eliminated.

Social Security Reform

Prior to the reform implemented in 1996, the central government had to finance an annual Social Security deficit equivalent to more than 6 % of GDP (and more than one-third of the central government's total expenditures.) A growing population of pensioners increased the burden yearly. The reform is converting the highly deficit-ridden public system into a solid bifurcated system of public and private providers (known locally by their Spanish acronym, AFAPS.) Its short term fiscal cost --generated by income reductions together with continuing expenditures-- will be financed primarily by external loans. In the medium-to-long term, the reform is expected to reduce the social security's deficit from the current 6 % of GDP to 1 %. To date, the new system has surpassed all expectations as 400,000 persons have joined private pension plans. More than 450,000 are expected to be affiliated by the end of 1997. The new system is also expected to stimulate local capital market operations.

Mercosur

Mercosur integration continues to advance at a rapid pace despite some internal conflicts. Duties among Mercosur's members (Argentina, Brazil, Paraguay and Uruguay) were largely eliminated and a common external tariff for most products was implemented on January 1, 1995. Chile and Bolivia were accepted as Associate Members of Mercosur in 1996 and 1997 respectively (Associate Members belong to the customs union but not to Mercosur). Mercosur's Common External Tariff varies between 0 and 20 % (with a weighted average of 6.6 %,) while Uruguay's Global Tariff --the effective tariff that temporarily applies to some exempted products-- varies between 0 and 27 %. Traditionally high Uruguayan trade with neighboring Argentina and Brazil increased even more with Uruguay's integration into Mercosur. Under Mercosur, exports to Mercosur partners have grown from 41 to 46 % of total exports while imports from Mercosur partners have risen from 40 to 44 % of total imports.

Budget Deficit

A fiscal adjustment implemented during 1995 -focusing on increased consumption and payroll taxes- was effective in lowering the budget deficit from 2.8 % of GDP in 1994 to 1.6 % in 1995. In 1996, the budget deficit remained stable at 1.6 % of GDP despite the cost of implementing the State and Social Security reforms. Budget deficit improvement was the result of increased tax revenues and a lower-than-expected increase in public spending led by strong restrictions on public investment.

Inflation

Although the inflation rate remains among the highest in Latin America, it has maintained a steady decline for the last six years. The inflation rate decreased from 130 % in 1990 to 24.3 % in 1996. Through April 1997, it had declined to 22.0 % (on 12 month basis): the lowest rate in the last fifteen years. A "gradual" approach in battling inflation was pursued as the government felt that, in a heavily-indexed economy, a fast plunge in the inflation rate would generate a strong increase in public real spending that would undermine fiscal efforts. The government uses two instruments to reduce inflation: reducing the budget deficit and controlling the depreciation rate of the peso. In the Uruguayan exchange system --based on a band inside which the exchange rate can float-- the government manages the evolution of the band's floor. A reduction in the peso's depreciation rate in 1997 and 1998, along with the extension of the periods between wages and tariffs adjustments, would help control inflation. Private analysts concur with government's projections of 15 and 9 % inflation rates for 1997 and 1998.

Privatization and Deregulation/Public Sector Reform

Public enterprise privatization stalled in December 1992 when voters overturned parts a of a law on privatization. Despite the setback of the referendum, the government continued implementing some parts of the law giving the private sector access to areas formerly reserved for the State. Privatization of port services was completed, together with privatization of the Montevideo gas company and 51 % of the national airline (PLUNA.) Other activities were transferred to the private sector either under contract, concession or sale, including all services at Montevideo's Carrasco International Airport, domestic air service, construction and operation of the sewage and water supply for the area east of Punta del Este, construction of the new Punta del Este airport; construction and operation of a new toll road to Punta del Este, maintenance of national roads, operation of railroad passenger service, operation of a cellular telephone system and a casino in Punta del Este. Also, the government ended the state's insurance and mortgage monopolies. Other areas in which the private sector is expected to be involved are the interconnection of the electrical grid between Brazil and Uruguay and the construction and management of a natural gas pipeline from Argentina. State reform will also lead to a number of other services --formerly provided by the State--being provided by the private sector under contract.

Risk Rating

In 1996, Uruguay improved its risk classification for long-term debt issued in foreign currency to BBB minus (by Europe's IBCA and U.S.' Duff & Phelps), reaching the investment grade status that applies to economies that are considered safe for investment. The upgrading enables the country to receive pension fund investments from the U.S.

External Debt

Net Uruguayan external debt decreased during 1996 from US$ 2,968 to US$ 2,900 million. Almost 90 % of net external debt is public. The public and private sector account for almost the same amount of gross external debt (approximately US$ 6 billion), but the private sector owns more external assets than does the public sector. Extending the public debt's maturity is an explicit goal that may be met by the previously mentioned improvement in Uruguay's risk rating. For 1997, the government expects a US$ 370 million net increase in public external indebtedness, due to the need to finance structural reforms and the intention to amass international reserves as a hedge against possible regional problems.

Capital Market

The Uruguayan capital market has been characterized by its tiny size (operations account for less than 5 % of GDP), high degree of dollarization, limited diversification and the predominance of public vs. private paper. In 1996, three changes shook the capital market: the approval of a law on capital markets and commercial paper, the approval of a law on investment funds and the implementation of private funds (AFAPS) as part of the social security reform. The immediate response to the law on capital markets was a surge in the issuance of commercial paper, a good way of getting long-term funds for firms at competitive costs. The law on investment funds regulates their operation and is likely to encourage the use of these funds by local investors. Finally, AFAPS are expected to stimulate the capital market, to reduce local interest rates and, in the medium term, to increase saving and investment. A law on regulations for risk rating firms was passed in May 1997. A draft law on securitization is under study.

Unemployment

Despite the economy's good performance, through March 1997 unemployment remained high at 11.7 %.

Investment Law

As of May 1997 a law on foreign investment is being considered in Parliament that among other things, would make the rigid Uruguayan labor market more flexible.

Principal Growth Sectors

After experiencing a 2.0 % decrease in 1995 because of the fiscal adjustment and the "tequila" crisis, GDP grew 4.9 % in 1996. Growth was led by strong export and investment performances along with a recovery in private consumption. Officially, GDP is projected to grow at 3.0 % in 1997, but analysts and international institutions expect a higher rate of growth.

Agriculture and Livestock (10 % of GDP): The Agriculture and Livestock sector grew 2.5 in 1995 and 8.5 % in 1996. 1996's growth was due to increases in sector investment (facilitated by easier access to bank loans) and productivity. In the agricultural sector, rice (third among exports) had the best performance with high yield-per-acre and an increase in exports. Also, there was an increase in the acreage planted of wheat, barley, corn and sunflower that also produced high yields. International conditions made ovine production decrease. Livestock holdings and dairy production expanded as did production and exports of beef. For the five year period starting in 1997, firms are projecting 7, 5 and 8 % annual growth for dairy, beef and rice production, respectively.

Manufacturing (18 % of GDP): The effects of a necessary reconversion process (triggered by integration into Mercosur,) increased availability of raw materials and a stronger external--particularly regional--demand resulted in 4.5 % growth in 1996 ending a decade of downward movement. Growth was led by meat processing, machinery and electrical devices, paper, tobacco, mills and leather tanning. Among the sectors that, due to competition from imported goods, decreased their production were basic chemicals, cleaning products, machinery and metallurgy (due to a reduction in automobile production.)

Commerce, Restaurants and Hotels (13 % of GDP):It grew by 2.9 % in 1996, recovering from a 9 % downturn in 1995. Growth started in the second half of the year and was led by commerce while restaurant and hotel sales decreased due to lower tourism demand.

Transport & Communications (7 % of GDP): In 1996 the sector expanded 6 % under a stimulated demand for both transportation and communications. Land transportation demand was stimulated by transport of agricultural products and gasoline while maritime transport grew under an increased demand for port services. Aerial transport also increased while rail and bus service contracted. Communications had a strong performance due to increased telephone services and substantial investment by the government's communications company (ANTEL.)

Electricity, Gas & Water Utilities (4 % of GDP) :It grew by 5.1 % in 1996 due to growth in the State's electricity and water companies (UTE and OSE). Electrical production also grew due to increased internal demand.

Construction (4 % of GDP): This sector had suffered a 12.5 % plunge in activity during 1995. In 1996, it grew by 1.1 % led by a strong increase in public construction and a mild recovery of private construction.

Fisheries (0.1 % of GDP): It was the only declining sector (1.8 % decrease in 1996). The decrease took place after a superb 1995 performance, when it grew by 12.5 %.

Other Services (48 % of GDP): "Other Services" includes banking, financial and insurance services, services to firms, services by the government and other personal services, community and social services. After posting a solid gain in 1995, the service sector registered 1.2 % growth in 1996. Overall growth was led by the banking system--resulting from an increase in deposits--along with increases in services to firms and personal services. The service sector had shown consistent growth from 1984 through 1994, based largely on the strength of Uruguay as a regional financial center.

Government Role in the Economy

The Uruguayan economy is based on the principle of free enterprise and private ownership, yet investors are often faced with cumbersome and lengthy bureaucratic procedures. These are the result of many years of strongly protectionist economic policies. The Government owns, outright or partially, companies in the sectors of insurance, water supply, electricity, telephone service, petroleum refining, postal service, railways, banking and aviation. These activities generate about 18 % of the gross domestic product and employ a similar %age of the total labor force.

Balance of Payments Situation:

Trade Balance In 1996 the trade deficit climbed to US$ 713 million. Deterioration of trade balance is explained by a higher growth of imports versus exports (16.0 [FOB] and 13.8 % growth, respectively.) Imports grew to US$ 3.1 billion, led by imports of capital and intermediate goods, a reflection of the productive conversion that has been taking place since Uruguay joined Mercosur. Imports were also stimulated by falling tariffs (to a trade-weighted average of 6.6 %) and by the peso appreciation (since 1990, the peso has accumulated an overvaluation of 15-20 % with Mercosur and of more than 70 % with the U.S.) Export growth to US$ 2.4 billion was led by mill, dairy and farming products along with meat processing.

Merchandise Trade

In 1996, Uruguay's exports increased 13.8 %, imports rose 15.9 % (CIF) and the trade deficit was US$ 713 million on an FOB basis and US$ 926 million on CIF basis.

The leading import categories (by their share in total imports) and their %age increases in 1996 were:Share in totalGrowthImports US$ millions Industrial Supplies 33 21.4 1,085 Machinery & Equipment 15 24.9 486 Gas & Oils 7 27.0 226 Non-durable consumption goods 5 19.7 179 Food & Beverage for the home 5 16.0 160 Total Imports (CIF) 15.9 3,323 The leading categories of Uruguayan exports in 1996 were: Share in total Growth Exports US$ millions Beef and other animal products 30 29.0 399 Wool and textile manufactures 15 14.0 349 Mills (mainly rice) 9 39.0 211 Leather and leather manuf. 7 11.0 177 Total Exports 13,8 2,397

The country's principal trading partners (exports plus imports) in descending order in 1996 were Brazil, Argentina, the United States and Italy. Uruguay's leading export markets in 1996 were Brazil (US$ 831 million), Argentina (US$ 272 million), the United States (US$ 167 million) and China (US$ 116 million). The leading suppliers of Uruguayan imports in 1996 were Brazil (US$ 746 million), Argentina (US$ 691 million), the United States (US$ 398 million) and Italy (US$ 171 million). The United States bought 7.0 % of Uruguay's exports in 1996 and provided 12.0 % of the country's imports.

Current Account

In 1996 Uruguay's current account deficit worsened by US$ 83 million, up to US$ 296 million, growing from 1.2 % of GDP in 1995 to 1.6 in 1996. This negative balance was comprised of a US$ 713 million (F.O.B. basis) foreign trade deficit, a US$ 435 million travel account surplus and a US$ 18 million deficit in net interest and other services. Financing of the current account deficit so far has not been a problem due to long-term capital inflows and favorable prospects of attracting sovereign debt instruments from the international capital market favored by risk-rating upgrading.

Capital Account

In 1996 Uruguay received a net inflow of US$ 190 million from the rest of the world. Public sector inflow increased net indebtedness (especially long-term) while the private sector increased its net assets. Public sector net indebtedness increased by US$ 211 million, a result of the US$ 11 million decrease in short-term debt and the US$ 200 million increase in long-term debt (extending the debt's maturity is one explicit goal of the government.) The private sector increased its net assets with the rest of the world by US$ 21 million, despite an historic US$ 700 million increase in non-resident deposits in local banks.

Net Foreign Reserves

The combination of a current account deficit (US$ 296 million) and a surplus in the capital account(US$ 439.4 million --including errors and omissions of US$ 250 million) resulted in an increase of US$ 144 million in the Central Bank's net foreign reserves in 1996. Total net foreign exchange reserves amounted to US$ 2,089 million on December 31, 1996, equivalent to 7.5 months of imports and more than enough to pay total external debt service for the next three years.

Infrastructure Situation Re: Goods/Service Distribution

Uruguay is covered by a North-South network of good roads. From East to West however, roads are narrow and often in a poor state of repair. Railway transportation is used for the shipment of goods mainly along the Uruguay River border with Argentina and along other limited routes in the interior. A major world-class seaport is located in the capital city of Montevideo and most of its services have been recently privatized. Small ports are located in the free zones of Nueva Palmira and Colonia, and in the towns of Piriapolis, Punta del Este and La Paloma. Uruguay is connected to the rest of the world via an international airport located in Montevideo which is serviced by approximately ten regularly scheduled foreign airlines and one national airline. Interior air service, while recently privatized and available, is not very reliable. Studies are currently underway for the rehabilitation of certain stretches of the railway network as Uruguay will soon need an efficient and reliable method to transport lumber from the interior of the country to the seaports.

III. POLITICAL ENVIRONMENT

Nature of Bilateral Relationship with the United States

Relations between the United States and Uruguay are excellent. Uruguay is an active participant in international fora. The government of Uruguay has taken a very active role in the follow-up to the 1994 Summit of the Americas by leading two of the working groups that came out of the Summit. Uruguay supports the establishment of a Free Trade Area of the Americas, which is projected to come about before the year 2006. The two governments cooperate on a wide range of issues, including counter-narcotics, technology, defense, environment and development projects.

Major Political Issues Affecting Business Climate

The Government of President Julio Maria Sanguinetti (Colorado Party/Foro Batllista), upon taking office March 1, 1995, immediately introduced a vigorous legislative program to address the most pressing problems facing the country. A parliamentary coalition with the opposition Blanco Party assured passage of the administration's economic plan, which took effect May 1 of that year, and the approval of the government's plan for reforming the social security system, which went into full effect on April 1, 1996. An administrative reform project, which would reduce the number of central government offices and employees on the public payroll, is currently being implemented.

The main opposition to the government's programs comes from the Frente Amplio, a grouping of leftist parties and factions, and from the national labor confederation. The social security reform legislation was also vigorously opposed by the large number of retired persons who benefit from the current plan.

Brief Synopsis of Electoral and Political System, and Orientation of Major Political Parties

Uruguay is a constitutional democracy with an elected president and parliament. The country is divided into nineteen departments (states) including Montevideo, the capital.

Uruguay's complex electoral system was modified in a national constitutional plebiscite held on December 8, 1996 that narrowly approved the proposed amendments. National elections are held every five years and the next general elections are scheduled for 1999. The new system provides for simultaneous party primary elections to be held on the last Sunday of April of the election year. All parties must nominate one candidate and a list of party officials. To secure the party's endorsement, a candidate must obtain either a simple majority of votes or forty % of the votes with at least a ten % advantage over the second place candidate. If neither of these results occur, a party convention would nominate the candidate. The first round of national elections in which the President, Vice-President, Senators and Deputies are elected will be held on the last Sunday of October of the same year. To win, a presidential candidate must obtain a minimum of 51 % of the votes cast. The new system includes a second round of national elections (Ballotage) if no presidential candidate obtains a simple majority in the first round. If this is the case, a second round between the top two candidates would be held on the last Sunday of November.

The president may not stand for immediate re-election, but may be re-elected after at least one term out of office. State governors may be re-elected one time, but there is no limit on the re-election of senators and deputies. All elected offices are for a five-year term. The judiciary, one of the most independent in Latin America, is headed by a five-member Supreme Court. Departmental governments have budgetary independence from the central government and may set their own tax rates.

Electorally speaking, there are three main political forces in Uruguay. The 1994 election results show a parliament divided accordingly. The two traditional parties, the Colorado and the Blanco (National), have existed for most of this century. The third, the Frente Amplio (Broad Front), a leftist coalition of numerous parties and factions, was founded in 1971. Factionalism within parties makes defining their orientations somewhat difficult, nevertheless the following general observations hold true.

Colorado Party

The Colorado Party is the traditional party of the urban areas and, until being usurped by the Frente Amplio, was the party of the working class and of Montevideo. The largest faction of the party, the Foro Batllista, is led by President Julio Maria Sanguinetti, a self-proclaimed social democrat who advocates gradual economic reform while protecting basic Uruguayan sectors, such as agriculture. Contrary to its traditional principles of state-owned and state-controlled enterprises, this Colorado Administration is open to foreign investment; privatized state services; and eliminated some state monopolies such as alcohol production, mortgage bank programs for the construction of new buildings and port services. The Administration also has granted to the private sector the construction and operation of new highways, airports, the bridge connecting Colonia with Buenos Aires; the national airline PLUNA; and a new thermoelectric generating unit in the department of Paysandu.

National (Blanco) Party

The National Party is the traditional party of the rural interior. In the minority for most of its existence, the 1990-95 Administration of President Luis Alberto Lacalle was only the third Blanco Administration this century. The Lacalle Administration unsuccessfully attempted to privatize a number of unprofitable state-owned enterprises, yet reduced inflation from 129 % to 44 % during its term of office. While party ideology runs from fiscal conservatism to populism, the largest faction favors economic reform, free enterprise and taxing wealth. The Party's board of directors is headed by Sanguinetti's major partner in the coalition, Dr. Alberto Volonté, who holds the majority of party support.

Frente Amplio (Broad Front)

The leftist coalition advocates a redistribution of wealth through the reduction of the value added tax (now 23%), increases in other taxes directed at the wealthy and at speculative enterprises. It also has advocated weakening the country's legendary bank secrecy laws. The party supports Mercosur, but only if tariffs are sufficiently high to defend domestic production and employment. The coalition won the capital's municipal government for the first time in 1989 and was reelected in 1994. During their seven-year administration of Montevideo, land and property taxes have been increased significantly and services such as garbage collection, parks and plazas maintenance have been privatized.

IV. MARKETING U.S. PRODUCTS AND SERVICES

With a population of just over three million, Uruguay has a relatively small internal market. However, Montevideo was selected as the site of the permanent headquarters for Mercosur. Many companies are looking at the city as a base of operations or distribution center for Mercosur. It offers certain advantages such as a world-class port facility, geographic proximity to the major population centers of southern Brazil and Buenos Aires, good English-language schools and good housing. In addition, the government is planning to construct a new international air terminal in Montevideo and to convert the existing facility to a cargo terminal. There are Free Zones that offer incentives to investors.

Distribution and Sales Channels

Use of Agents/Distributors

Finding a Partner A foreign supplier should be thorough in the selection of an agent or local representative. For this purpose, the supplier may wish to take advantage of the export promotion services provided by the U.S. Department of Commerce which include the Agent/Distributor Service (ADS), which helps identify prospective/interested agents and distributors. The supplier should make clear in the contractual agreement between the parties whether the relationship is that of employer-employee or whether it is merely a commission-based relationship. Failure to do so could result in supplier liability for severance and related benefits if he or she decides to terminate the relationship.

Franchising

Franchising in Uruguay has so far been limited to fast-food outlets and some retail clothing stores. There are no legal restrictions on operating franchises in Uruguay.

Direct Marketing

Because of Uruguay's small size, direct marketing is generally not cost effective.

Joint Ventures/Licensing

Both joint ventures and licensing are common in Uruguay and generally involve similar procedures practiced in most other countries.

Steps to Establishing an Office

The formation of a new enterprise or the acquisition of an existing Uruguayan company can be made freely. Shell corporations already formed but with no operations are also available for acquisition. It is advisable to contract with an experienced attorney who can provide guidance in completing the legal paperwork required.

Selling Factors/Techniques

Foreign manufacturers enjoying sustained sales of their products imported into Uruguay typically use the services of an agent or distributor. Practically all importers/distributors are based in Montevideo, although some maintain sales networks in the interior of Uruguay. A U.S. firm with a local representative has the advantage of keeping up-to-date with local market conditions, as well as with changes in policies affecting trade.

Uruguay is a good market for both new and used equipment and machinery. Often, equipment considered obsolete in the U.S. may still be sold to local industry. U.S. manufacturers will find that the major factors affecting a decision to buy their products are quality, price, payment terms, delivery time, after-sales servicing and compatibility with existing systems.

U.S. manufactured products are generally regarded as high in quality and competitive in price, but are sometimes rated low on an important factor in the decision to buy -- financing. American manufacturers offering flexible, innovative, and competitive credit terms will overcome a difficult hurdle in achieving export sales to Uruguay.

Advertising and Trade Promotion

Advertising in Uruguay is relatively inexpensive by U.S. standards. It is advisable to work with a local advertising agency. The major newspapers and business journals are Búsqueda, El Observador Económico, El País and Crónicas Económicas. Several of the major international advertising agencies maintain offices in Montevideo.

One of the major U.S. export promotion activity in Uruguay is the Prado Agro-Industrial and Commercial Fair held each September. The U.S. pavilion at this fair traditionally features exhibits of approximately 40 U.S. companies. It provides an excellent means of introducing a new product or service to the Uruguayan market as it is visited by approximately 500,000 people during its two week duration. A newer, biannual fair, the Feria Internacional del Plata (FIPLA), is more appropriate for introducing industrial goods and establishing contacts with agents and distributors. The Embassy also hosts industry-specific catalog exhibitions each year. Details concerning these fairs may be obtained from the Political/Economic Section, American Embassy Montevideo, Unit 4510, APO AA 34035, Tel: (5982) 48-77-77, Ext. 2366. Fax: (5982) 48-85-81.

List of Major Newspapers and Business Journals

Busqueda: Danilo Arbilla, Editor; Av. Uruguay 1164, Montevideo, Uruguay; Fax: (5982) 92-20-36; e-mail busqueda@adinet.com.uy.

El Observador: Ricardo Peirano, Editor; Cuareim 2052, Montevideo, Uruguay Fax: (5982) 94-74-98; e-mail observador@zfm.com.

El Pais: Martin Aguirre, Editor; Plaza Cagancha 1162, Montevideo, Uruguay; Fax: (5982) 98-29-46.

Cronicas Economicas: Jorge Estellano, Editor; Av. Libertador 1532; Montevideo, Uruguay; Fax: (5982) 92-07-59.

Pricing Product

The Uruguayan market price structure reflects world market prices plus import tariffs and transportation costs. In addition to tariff advantages, products from nearby Mercosur countries like Argentina and Brazil enjoy significantly lower transportation costs than do products from the U.S., Europe and Asia.

Sales Support/Customer Service

Sales support and customer service are important factors when Uruguayans are deciding which products to buy. U.S. manufacturers should appoint an agent in Uruguay to provide customer support services. Company representatives resident in neighboring countries are less effective.

Selling to the Government

Although U.S. companies may sell directly to the Uruguayan Government, it is useful to have a registered local representative. Registration takes place once a year during a specified period of time in which interested parties may be added to the list of official government suppliers. Companies should also consider providing product literature and price quotations to selected government purchasing offices, and to the different state entities, as they frequently refer to literature on hand when drafting specifications for their procurement tenders. The Embassy continually reports via the Major Projects Program and other means to the Department of Commerce on major opportunities for U.S. contractors and manufacturers in Uruguay.

Protecting Your Product from Intellectual Property Right (IPR) Infringement

Uruguay's IPR regime does not yet meet international standards (TRIPS). The most serious lack of IPR protection is the specific exclusion of pharmaceuticals and chemical products from patent protection. Uruguay's copyright law dates to 1937; the extent to which it protects computer software is subject to judicial interpretation each time a case is presented. Uruguay is a member of the World Intellectual Property Organization (WIPO) and a party to the Bern Convention, the Universal Copyright Convention (UCC) and the Paris Convention for the Protection of Industrial Property. Registering a foreign trademark without proving a legal commercial connection with the trademark is no longer a possibility; enforcement of trademark rights is excellent. Public/private sector commissions have been drafting IPR legislation on patents, copyrights and trademarks to bring Uruguay up to TRIPS standards. None of the bills had been presented to parliament as of June 1, 1997. Uruguay was listed in the "other observations" category during the 1997 Special 301 process due to difficulties in copyright and patent protection.

Need for a Local Attorney

It is advisable to obtain a local attorney before setting up operations in Uruguay or carrying-out substantial amounts of business. Local attorneys can be very helpful in sorting through the red tape and bureaucracy which may otherwise be frustrating for a newcomer. A list of local attorneys may be obtained from the Embassy's Consular Section (Tel: 5982-48-77-77 ext. 2362.)

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENTS

Best Prospects Products and Services for U.S. Exporters

The United States occupies the third place in the ranks of leading exporters to Uruguay, after Brazil and Argentina. Best prospects for U.S. products are chemicals (including agricultural), manufactured goods and machinery, transport equipment, food processing equipment, computer hardware and software, office machinery, alternative energy sources (such as wind energy and to a certain extent solar power), telecommunications, and medical and laboratory equipment. Uruguay's proportionally large elderly population should be a good market for geriatric equipment and services in the near future. Tourism and forestry are high in the Government's development plans and represent excellent areas for exploration as prospective opportunities for U.S. exports.

Major Infrastructure Projects Underway

Uruguay receives loans and grants from the World Bank, the Inter-American Development Bank and other multilateral institutions for major projects and programs. The Embassy continually reports via the Trade Opportunity Program, the Foreign Government Tender Program and the Major Projects Program to the Department of Commerce and its district offices on major opportunities in Uruguay for U.S. contractors and manufacturers. Brief descriptions of these opportunities follow:

Parana-Paraguay River Transportation System

The governments of Uruguay, Argentina, Brazil, Paraguay, and Bolivia are jointly working together on what has become the largest Latin-American "regional integration" project -- the joint use of the 2,500-mile long Parana-Paraguay-Uruguay rivers for the transportation of goods from the five countries to the Atlantic Ocean. The project, expected to be completed by the year 2000, calls for investments on the order of US$935 million including civil construction (US$120 million), dredging and maintenance (US$150 million), ports (including equipment, US$115 million), and fleet (US$550 million). Further opportunities for U.S. involvement lie in the development of the administration of the waterways. Information on the status of this project may be obtained from Jorge Sanguinetti, President, Comision Hidrovia, Tel: (5982) 98-33-86; Fax: (5982) 92-16-78.

Colonia-Buenos Aires Bridge

The Colonia-Buenos Aires Bridge Administration is expected to award the tender to construct this 24- to 32-mile long bridge joining the capital city of Argentina, Buenos Aires, and the Uruguayan city of Colonia in Uruguay later in 1997. Possibilities for U.S. involvement will exist in all aspects of this multi-billion dollar bridge project. It is planned that the bridge will be constructed and operated by a private concession under a build-operate-transfer (BOT) regime. Further information on this project may be obtained by contacting: Ing. José Serrato, Presidente, Comision Binacional Puente Buenos Aires - Colonia, Tel: (5982) 92-08-76, 90-78-01, 90-74-37, Fax: (5982) 92-08-76.

Suburban Passenger Railway System

Recent press articles have announced the imminent call for bidders interested in constructing (under a build-operate-transfer system) a suburban railway system extending outwards from the capital city of Montevideo into the nearby bedroom communities along the River Plate. The proposed system would extend for a stretch of approximately 33 miles and be built along (or over, in case an elevated system were selected) the center, dividing lane, of a pre-existing four lane highway. Further information may be obtained from: Dr. Victor Vaillant, President, Administracion de Ferrocarriles del Estado (AFE), Fax: (5982) 94-08-07.

Private Power Generation

Opportunities exist in the sale of aeolic and solar power generators. Feasibility studies funded by the Trade and Development Agency (TDA) for the construction of a rice-husk operated plant are currently underway. Other feasibility studies for the conversion of existing and construction of new power plants are currently being done by a U.S. firm. Among the projects being examined are a US$7 million project proposal to convert boilers (currently using fuel oil) to natural gas with consumption capacity of 3,000,000 cubic meters of gas per day; a US$106 million proposal to transform a power plant into a combined cycle 119MW plant; and the proposed construction of 180MW and 362MW combined cycle power plants at an estimated cost of US$110 to US$115 million). The U.S. Department of Energy and the American Embassy in Montevideo, with the cooperation of the Uruguayan government, will be hosting a Mercosur Energy seminar in September 1997. The invitees will include the top energy-related decision makers from all of the countries of Mercosur and it will provide an excellent opportunity for U.S. companies to meet potential clients. For more information, please contact the Commercial Section of the U.S. Embassy Montevideo at (5982) 48-77-77 Ext 2366. Further information on on-going or planned power projects may be obtained by contacting: Ing. Jaime Parada, Director Técnico, Dirección Nacional de Energía, Ministerio de Industria, Energía y Mineria, Tel: (5982) 98-59-29, 91-29-68, Fax: (5982) 91-93-82.

International Airport

The Government of Uruguay has decided to renovate the existing Carrasco International Airport in Montevideo at an estimated cost of US$60 million dollars. Bid documents are expected to be ready in June, 1997. The feasibility studies have been concluded by an Italian firm. Further information may be obtained by contacting: Brig. Gral. Cesar Borucki, Director Nacional, Dirección Nacional de Infraestructura Aeronáutica y Aviación Civil, Tel: (5982) 93-20-14, Fax: (5982) 90-85-97. Port Renovations - From time to time the National Port Administration issues tenders for port renovation projects, channel deepening projects, and warehouse construction projects. Information on any of these may be obtained from: Ruben Diaz, President, Administracion Nacional de Puertos ANP, Fax: (5982) 96-17-04.

VI. TRADE REGULATIONS AND STANDARDS

Trade and Investment Barriers

There are limitations on foreign equity participation in a number of important areas of the Uruguayan economy deemed strategic for the country's development. Investment in these areas requires authorization from the Government and includes electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of strategic minerals, banking and finance, railroads, telecommunications, radio, television, press and those activities entrusted by law to government-owned enterprises. However, authorization is readily granted for equity participation in mining, hydrocarbons and banking and finance. There are no restrictions on technology transfer.

Uruguay has long owned and operated state monopolies in a number of key areas in which, by law, foreign equity participation is prohibited. The state monopoly, UTE, controls all bulk electrical distribution in Uruguay. The state-owned oil company, ANCAP, is the only importer and refiner of petroleum products in the country. The retail gasoline industry was privatized, although it is subject to extensive regulation. All freight shipment by rail is controlled by the state railroad AFE. The state telephone company, ANTEL, controls the private telephone and telecommunications industry. Cellular service is provided by ANTEL and a private firm regulated by ANTEL. All Uruguayan ports are operated by and administered through the National Port Administration (ANP). Many port services, however, have been privatized. The state enterprise, OSE, controls most water and sewage services in Uruguay except in some small resort areas on the Atlantic coast. Fifty-one % of the state-owned airline PLUNA is controlled by the private sector.

Uruguay's tariff structure follows the "HS" or Harmonized System of tariff nomenclature. All customs duties, surcharges, service and other charges are consolidated in a customs unified rate or "tasa global arancelaria" (TGA). The MERCOSUR member countries agreed on a common external tariff (CET) in December 1994. On January 1, 1995, the CET entered into effect on imports from non-member countries, at rates ranging (with some exceptions) between 0 and 20 %. Intra MERCOSUR trade is carried out at zero tariff (again, with some exceptions). These exceptions to the agreed tariffs are scheduled to disappear by the year 2006.

Uruguayan importers are required to pay a four % ad valorem tax on all freight arriving via foreign-registered airlines. Freight which arrives by the national airline is exempt from the tax. A civil aviation agreement between Uruguay and the United States provides for equal treatment between U.S. and Uruguayan air freight carriers. Therefore, U.S. carriers are also exempt from this tax.

Customs Valuation

Customs valuation may be applied by the Office of the Director General of Customs when there is a question concerning a supplier's classification and/or valuation. Deception on the part of the importer or altering the value of imports is considered fraud. Import Licenses Certain imports require special licenses or customs documents. Among these are drugs, certain medical equipment and chemicals, firearms, radioactive materials, frozen embryos, livestock, bull semen, anabolics, sugar, seeds, hormones, meat and wheat. Export Controls There are no export controls currently in force. Export sales of certain domestic products enjoy tax exemptions and special credits.

Import/Export Documentation

Only commercial firms, industrial firms or individuals listed in the Registry of Importers may legally import products into Uruguay. Temporary Entry Products may be imported under the temporary admission or drawback provisions. Products imported under temporary admission provisions must be re-exported within 18 months. Labeling, Marking Requirements Labeling and marking requirements are set and controlled by two federal and several municipal agencies. Basically, labels must contain a description in Spanish of the main ingredients of a product, its country of origin, expiration date and the full name and address of the Uruguayan importer. Prohibited Imports From time to time the Government bans the importation of certain food articles originating from areas declared by the World Health Organization to be unfit. The Municipality of Montevideo follows strict, if sometimes outdated, regulations regarding the composition of food articles (dyes, etc.). Standards Uruguay uses the metric system of weights and measures. The Laboratório Tecnológico del Uruguay (LATU) is the officially approved agency that controls standards and quality control of imports and exports.

Free Trade Zones/Warehouses

The use of established free trade zones as well as the establishment of new free-trade zones is encouraged. These zones are designed to store and process goods or raw materials of Uruguayan or foreign origin and for the establishment and operation of export-oriented industries. Law No. 15,921 of December 17, 1987, regulates the operation of free trade zones within the country. The law allows storage and warehousing, manufacturing, and financial, data processing or other related activity to take place within free trade zones. State-owned and operated, state-owned but privately operated, and private sector-owned free trade zones are located throughout the country. Free zone locations include Colonia, Nueva Palmira, Montevideo, Fray Bentos, Florida, Rivera, Nueva Helvecia and Libertad. Mercosur regulations treat products manufactured in all member-state free trade zones as extra-territorial and thus manufacturing in Uruguayan free trade zones by a Uruguayan or foreign firm will not provide for Mercosur customs union advantages. The following advantages are granted by law to both local and foreign-owned industries operating in a free zone:

1. Users are exempt from all domestic taxes in effect or which may be created. The only tax not covered by this exemption is employer contributions to social security for Uruguayan employees. Uruguayans must comprise 75 % of the labor force employed by the user of the zone. The employer is free from payment of social security taxes for non-Uruguayan employees if those employees waive coverage under the Uruguayan Social Security.

2. Goods, services, products or raw materials of foreign and Uruguayan origin may be entered into the zones, held there, processed, and re-exported without payment of Uruguayan customs duties and import taxes (goods of Uruguayan origin re-entering into free zones will be treated as Uruguayan exports for all tax and other legal purposes). Goods entering into Uruguayan customs territory from free zones are subject to customs duties and import taxes.

3. Industrial or commercial government monopolies are not allowed within free trade zones.

Special Import Provisions

There are no special import provisions or restrictions. All goods may be imported except for a very limited list of goods which may be imported only with special authorization.

Membership in Free Trade Arrangements

Uruguay is a member of the World Trade Organization (WTO) and the Latin American Integration Association (ALADI). It is also a founding member of the Southern Common Market (Mercosur) composed of Brazil, Argentina, Uruguay and Paraguay. Chile is an associate member of Mercosur and Bolivia is poised to follow suit. Separate interim free trade arrangements for certain products are also in effect with Brazil and Argentina.

VII. INVESTMENT CLIMATE

Openness to Foreign Investment

The Government recognizes that foreign investment has an important role to play in the continuing development of the economy and maintains a favorable policy through a number of incentives, though it offers no special benefits vis-à-vis foreign investors. There is neither de jure nor de facto discrimination towards investment by source of origin. Although not required, foreign investment may be channeled through the Industrial Promotion or Foreign Investment Law of 1974. Although most investors do not take advantage of the provisions of this law, a declaration by the Uruguayan Government that an investment project is in the national interest under this law may provide important tax and customs benefits. One hundred % of foreign ownership is permitted except where restricted for national security purposes.

The Uruguayan Government does not generally prescribe specific authorization in order to establish an industry, to import and export, to effect deposits and banking transactions in any currency, or to obtain credit. No special government authorization is needed to have access to the Industrial Promotion Law, to capital markets or to foreign exchange. Foreign investors, nevertheless, may obtain those guarantees under the Foreign Investment Law of 1974.

A new Foreign Investment Law is under consideration by the Government and should be approved later in 1997.

There are limitations on foreign equity participation in a number of important areas of the Uruguayan economy deemed strategic for the country's development. Investment in these areas require authorization from the Government and include electricity, hydrocarbons, basic petrochemicals, atomic energy, exploitation of strategic minerals, banking and finance, railroads, telecommunications, radio, television, press and those activities entrusted by law to government-owned enterprises. However, authorization is readily granted for equity participation in mining, hydrocarbons and banking and finance. There are no restrictions on technology transfer.

Uruguay has long owned and operated state monopolies in a number of key areas in which, by law, direct foreign equity participation is prohibited. Several state-owned entities, however, have associated themselves with foreign-owned companies to provide specific services for a specified period of time. Although private generation of power is now allowed, excess power must be sold to the state-owned power company, UTE, which still holds the bulk electrical distribution monopoly. The state-owned oil company, ANCAP, is the only importer and refiner of petroleum products in the country. The retail gasoline industry was privatized but it is currently subject to extensive regulation. All freight shipment by rail in Uruguay is controlled by the state railroad AFE. The state telephone company, ANTEL, controls the telephone and telecommunications industry. Cellular service is provided by ANTEL and a private firm regulated by ANTEL. All Uruguayan ports are operated by and administered through the National Port Administration, ANP. Many port services, however, were privatized in 1992. The state enterprise, OSE, controls most water and sewage services in Uruguay except in some small resort areas on the Atlantic coast. Fifty-one % of the state-owned airline PLUNA was recently sold to the private sector.

Right to Private Ownership and Establishment

There are no restrictions on private ownership, the establishment of a business and/or on engaging in any form of remunerative activity except in areas declared of national security interest or in which the Government maintains a legal monopoly.

Protection of Property Rights

Uruguay's IPR regime does not yet meet international standards (TRIPS). The most serious lack of IPR protection is the specific exclusion of pharmaceuticals and chemical products from patent protection. Uruguay's copyright law dates to 1937; the extent to which it protects computer software is subject to judicial interpretation each time a case is presented. Uruguay is a member of the World Intellectual Property Organization (WIPO) and a party to the Bern Convention, the Universal Copyright Convention (UCC) and the Paris Convention for the Protection of Industrial Property. Registering a foreign trademark without proving a legal commercial connection with the trademark is no longer a possibility; enforcement of trademark rights is excellent. Public/private sector commissions have been drafting IPR legislation on patents, copyrights and trademarks to bring Uruguay up to TRIPS standards. None of the bills had been presented to parliament as of May 15, 1997. Uruguay was listed in the "other observations" category during the 1997 Special 301 process due to difficulties in copyright and patent protection.

Foreign Trade Zones/Free Ports

Law No. 15,921 of December 17, 1987, regulates the operation of free trade zones within the country. The law allows storage and warehousing, manufacturing, and financial, data processing or other related activity to take place within free trade zones. State-owned and operated, state-owned but privately operated, and private sector-owned free trade zones are located throughout the country. Free zone locations include Colonia, Nueva Palmira, Montevideo, Fray Bentos, Florida, Rivera, Nueva Helvecia and Libertad. Mercosur regulations treat products manufactured in all member-state free trade zones as extra-territorial and thus manufacturing in Uruguayan free trade zones by a Uruguayan or foreign firm will not provide for Mercosur customs union advantages.

The following advantages are granted by law to both local and foreign-owned industries operating in a free zone:

1. Users of free trade zones are exempt from all domestic taxes in effect or which may be created. The only tax not covered by this exemption is employer contributions to social security for Uruguayan employees. Uruguayans must comprise 75 % of the labor force employed by the user of the zone. The employer is free from payment of social security taxes for non-Uruguayan employees if those employees waive coverage under the Uruguayan Social Security.

2. Goods, services, products or raw materials of foreign and Uruguayan origin may be entered into the zones, held there, processed, and re-exported without payment of Uruguayan customs duties and import taxes (goods of Uruguayan origin re-entering into free zones will be treated as Uruguayan exports for all tax and other legal purposes). Goods entering into Uruguayan customs territory from free zones are subject to customs duties and import taxes.

3. Industrial or commercial government monopolies are not allowed within free trade zones.

Performance Requirements/Incentives

There are currently no specific performance requirements on which foreign investment is conditioned.

The current investment law does not specify any tax deferrals, grants, special access to credit or import quota exceptions to foreign investors unless their activities fall within the "national interest" category (see Industrial Promotion Law below).

Regulatory System: Laws and Procedures

Laws and procedures regulating foreign investment are transparent and streamlined. However, legislated labor and social security benefits add significantly to the firm's cost structure. Furthermore, the Government from time to time creates a series of regulations that allow local debtors to refinance debt on extremely favorable terms and conditions. This practice has the effect of sustaining inefficient firms which compete with well-managed firms.

Corruption

There are specifically designed laws to prevent bribery and other corrupt practices. The new Sanguinetti administration is also taking the initiative to strengthen these laws. Acceptance of a bribe is a felony in Uruguay's penal code. U.s. firms have not identified corruption as an obstacle to foreign direct investment.

Labor

The Uruguayan labor force of some 1.5 million is well-educated and adept in the application of modern industrial techniques. The Government has instituted technical training programs such as those at the Universidad del Trabajo del Uruguay to help meet industry's skilled labor requirements.

The social security overhead in Uruguay is high, increasing basic wage costs of an employer by over 50 %. The social security system currently allows for retirement at age 60 for both men and women. Disabled workers receive payment from the Government of 70% of their salaries plus free medicine and medical care. The value of local manufactured goods reflects a relatively high %age of labor content.

The average unemployment rate in Montevideo for 1996 was 12.3 %, up from 10.8 % in 1995 (11.4 and 9.7 in 1996 and 1995 respectively for the rest of the country).

For several years, Uruguay's economy has experienced steady declines in manufacturing as companies trimmed their work forces or were forced to close for lack of competitiveness. The high cost of labor was perceived to be a primary factor in the overall decline of manufacturing.

Organized labor has been declining in influence. Union leaders continue to come from the far left, but there are signs that they are changing their former confrontational attitudes. Unions are beginning to recognize that job protection is as important as wage levels. Strikes and labor-management conflict have diminished slightly, and some of the union leadership appear to be seeking methods of cooperation and negotiation. Nevertheless, in 1995, 43 % of man hours lost were the result of politically-motivated strikes.

An estimated 15 % of the work force is unionized. The Uruguayan Constitution guarantees workers the right to organize and strike, and union leaders are protected by law against dismissal for union activities. Labor unions are independent of government and political party control. Sympathy strikes are not illegal. Uruguay has ratified a large number of ILO conventions protecting worker rights and generally adheres to their provisions.

Uruguayan labor is highly literate and adapts to new techniques readily, but it is not inexpensive. This factor, combined with the stiffer foreign competition resulting from reduced trade barriers, is causing Uruguayan industries to adopt more capital intensive technologies.

Efficient Capital Market and Portfolio Investment

Foreign investors have easy access to credit on market terms in the local market unless protection under the Foreign Investment Law is sought. The private sector has access to a variety of credit instruments. Uruguayan accounting systems are transparent and consistent with international norms.

As the stock market is underdeveloped, there is no effective regulatory system established to encourage and facilitate portfolio investment nor are there "cross shareholding" or "stable shareholder" arrangements used by private firms to restrict foreign investment.

In 1996, an unprecedented number of local commercial firms issued commercial papers to capture funds for investment projects. This procedure obliged the Central Bank to create a regulatory framework for the issuing of such instruments.

Conversion and Transfer Policies

There are no restrictions whatsoever on the purchase of foreign currency or remittance of profits abroad.

Expropriation and Compensation

The Uruguayan Constitution provides for the prior payment of fair compensation in the event of expropriation.

Dispute Settlement

Uruguay is not a member of the ICSID (International Center for the Settlement of Investment Disputes). One unresolved expropriation case involving a U.S. investor remains in litigation since the 1960's.

Political Violence

There have been no significant incidents over the past few years involving politically-motivated damage to property and/or installations.

Bilateral Investment Agreements

The Government of Uruguay has signed bilateral investment treaties with a number of countries and investment protection agreements have been signed with Italy, Germany, Switzerland, the Netherlands, Hungary, Romania, France and Spain. Double taxation agreements have been signed with Germany and Hungary. The Government has indicated a willingness to negotiate a bilateral investment treaty with the United States, but negotiations over the past seven years have not proven fruitful.

OPIC and Other Investment Insurance Programs

The Uruguayan Government signed an investment insurance agreement with the Overseas Private Investment Corporation (OPIC) in December 1982. The agreement allows OPIC to insure U.S. investments against risks resulting from expropriation, inconvertibility, and war or other conflicts affecting public order.

Foreign Direct Investment (FDI) Statistics

There are no official or reliable statistics on Foreign Direct Investment in Uruguay as the vast majority of the investors do not register under the Foreign Investment Law. During the last few years, the principal destination of most foreign investment has been in construction (hotels, office buildings, & infrastructure), mining, fast food services, and forestry-related activities including the construction of paper-producing plants.

VIII. TRADE AND PROJECT FINANCING

Brief Description of Banking System

The private commercial banking system is composed of 21 banks and 13 financial institutions. They jointly supply about one quarter of all banking credit to the private sector, nearly all of it for periods of six months or less. Major activities financed include foreign trade, industry, livestock marketing, domestic retailing, and consumer purchases. Offshore financial institutions operate with limited functions -- they may neither accept resident deposits nor offer checking account services. They engage primarily in intermediating foreign currency denominated funds from abroad in the domestic financial market.

The Central Bank of Uruguay (BCU) is charged with the responsibility for formulating and executing monetary and credit policies, supervising and controlling the banking system, issuing currency, and managing international reserves. The BCU also administers various development credit lines provided by international and bilateral institutions for the financing of industrial and agricultural activities.

The Bank of the Republic of Uruguay (BROU) is a multi-purpose government-owned bank and the largest credit institution in Uruguay. The BROU is also in charge of certain fiscal and foreign-trade financial activities such as the collection of some excise duties and tariffs and the control of foreign exchange proceeds from exports. It also provides about three-quarters of total bank credit to the private sector. Roughly 90 % of the bank's private sector credit is short-term.

The Banco Hipotecario del Uruguay is the largest mortgage bank in Uruguay and the principal intermediary of medium and long-term funds for housing in the country. About one third of the bank's lending has been channeled into the construction of low-income public housing under contractual arrangements with municipalities and various central government agencies. The remaining two-thirds is provided to the private sector, chiefly to builders for the construction of housing for middle-income families and individuals. A 1996 law allows private banks to compete with the Banco Hipotecario and finance the construction of residential apartment buildings from ground up.

Foreign Exchange Controls Affecting Trading

There are no foreign exchange controls which significantly affect trading.

General Financing Availability

Major project financing is provided by such agencies as the World Bank, the Inter-American Development Bank and the EXIM Bank. Foreign investors also have ready access to local financing sources such as the Banco de la Republica and other banks, government securities and the use of repatriated funds. Debt-equity swap arrangements are also in use.

How to Finance Exports/Methods of Payment

U.S. exports are generally financed by EXIM, OPIC, the international banking departments of major U.S. banks, the Small Business Administration and the Trade and Development Agency. Exports are usually financed through export letters of credit, sales on open account or drafts on foreign buyers.

Types of Available Export Financing and Insurance

The Overseas Private Investment Corporation (OPIC) offers investors insurance against currency inconvertibility, damage or interruption of operations from war, expropriation and political risk. OPIC also provides U.S. lenders with protection against both commercial and political risk by guaranteeing repayment of principal and interest on loans made to eligible investors.

Project Financing Available, Including Lending from Multilateral Institutions and Types of Projects Supported

Some of the major sources of project financing include:

A. Export-Import Bank (EXIMBANK): Eximbank provides U.S. exporters with several financing programs including working capital guarantees, export credit insurance, commercial bank guarantees, medium-term credits, small business credits, direct loans to foreign purchasers, and financial guarantees. Further information on EXIMBANK's programs may be obtained at 1-800-565-EXIM.

B. Overseas Private Investment Corporation (OPIC): OPIC's programs include loans and loan guarantees, investment funds, and political risk insurance (currency inconvertibility, expropriation, and political violence). OPIC may be contacted at 202-336-8799.

C. Commodity Credit Corporation (CCC): The CCC finances exports of U.S. agricultural commodities. The CCC may be reached at 202-447-4274.

D. Small Business Administration (SBA): SBA's Export Revolving Line of Credit Loan helps small businesses export their products. SBA may be contacted at 202-653-7794.

E. World Bank and Inter-American Development Bank: Both these banks offer programs which allow U.S. companies to compete in international major infrastructure projects. The Public Information Centers of both banks may be contacted through 202-458-5454 and 202-623-2096 respectively.

Several states also have their own export financing programs.

List of Banks with Correspondent U.S. Banking Arrangements

U.S. banks operating in Uruguay include the American Express Bank, Citibank, the First National Bank of Boston, the Republic National Bank of New York and the Chase Manhattan Bank.

IX. BUSINESS TRAVEL

Business Customs

Business dress and appearance, as well as one's general approach to business relations, should be conservative. An advance appointment for a business visit is usually necessary and considered customary courtesy. Punctuality is observed. Typically, business is discussed after social amenities. Extensive entertaining is common as are business lunches. At such meetings, personal matters should not be discussed on your initiative.

Travel Advisory and Visas

U.S. citizens need a valid American passport, but visas are not required for holders of regular passports. Those traveling on Diplomatic or Official passports must have a valid visa in addition to the passport.

Business and tourist stays are limited to 90 days, although business visits may be extended for an additional 90 days.

No inoculations are currently necessary for entry. International travelers are advised to contact their local public health department, physician or travel agent at least two weeks prior to departure to obtain current information on health requirements.

Holidays

January 1	New Year's Day
January 6	Epiphany
February	Two days for Carnival (6 weeks before Holy Week)
March/April	Five days for Holy Week (dates vary from year to year)
April 19	Landing Day of the 33 "Orientales"
May 1	Labor Day
May 18	Battle of Las Piedras
June 19	Birthday of Artigas
July 18	Constitution Day
August 25	Independence Day
October 12	Columbus Day
November 2	All Saints Day
December 25	Christmas

Note: Some holidays, when falling on a Tuesday, Wednesday, or Thursday, are transferred to the preceding Monday or following Friday.

Business Infrastructure

International telephone and fax service is efficient though expensive by U.S. standards. There is widespread use of cellular phones. International phone cards with "Dial-USA" features, such as AT&T, MCI and Sprint are accepted.

A couple of five-star category hotels in Montevideo have been recently inaugurated.

Several airlines have service to Montevideo's Carrasco International Airport from Europe, and other parts of Latin America. There are currently two daily flights to and from the U.S. Internal transportation is mainly by car or bus. There is very limited internal passenger railway service and no internal airline service other than privately chartered. Within Montevideo, bus and taxi services are extensive and inexpensive.

Uruguay observes standard time. This is three hours behind Greenwich Mean Time, two hours ahead of Eastern Standard Time, and one hour ahead of Eastern Daylight Time.

Electrical current is alternating 50 cycle, 220 volts, single and triple phase. Specially requested electric power supply to industry may be three-phase, 380 or 415 volts, 50 cycles.

X. APPENDICES

APPENDIX A

Country Data

Population: 1996 - 3.15 million
Population growth rate: Estimated yearly average 1985-96: 0.57%
Religions: Roman Catholic 66%, Protestant 2%, Jewish 2%, Non- Professing or other 30% Government system: Uruguay is a democratic republic with three separate government branches: a) the Executive branch made up of the President and twelve cabinet ministers; b) the legislative branch, a bicameral system with a 30-member Senate and 99-member Chamber of Deputies; and, c) the judiciary composed of the Supreme Court, lower courts, and justices of the peace.
Language: Spanish
Work week: Maximum 48 hours

APPENDIX B

Domestic Economy (US$ millions, except where noted)

	Source	1995	1996	1997 Proj.
GDP	6	17,864	18,956	19,576
GDP growth rate (%)	6	-2.0	4.9	3.0
GDP per capita	6	5,551	5,918	6,215
Central Government spending as % of GDP	6	21.2	21.3	21.3
Inflation %	2/6	35.4	24.3	15.0
Unemployment	1/6	10.2	10.7	11.0
Foreign exchange reserves	2/6	1,639	1,912	2,042
Average exchange for US$ 1.00	2/6	6.35	7.98	9.33
Net Foreign Debt	2/6	2,968	2,900	2,900
Debt service ratio	2/6	10.8	8.6	8.6
U.S. economic assistance	7	--	--	--
U.S. military assistance	8	--	--	--
Sales of equipment		--	--	--
Grants		--	--	--

APPENDIX C

Trade (US$ millions, except where noted)

	Source	1995	1996	1997 Proj
Total country exports (FOB)	2/6	2,148	2,397	2,582
Total country imports (FOB)	2/6	2,711	3,110	3,290
Exports to U.S. (FOB)	2/6	123	167	185
Imports from U.S. (CIF)	2/6	282	394	453
US share of imports (%)(CIF)	2/6	9.8	12.0	13.0
Imports of manufactured goods	2/6	--	--	--
Total from world		2,394	2,743	3,020
From the U.S.		276	381	440
US share of imports (%)		11.9	12.0	12.0
Manufactured goods trade balance with U.S.		-154	-218	-225
Average annual growth rate from world (%)		3.0	14.6	10
Average annual growth rate from U.S. (%)		8.7	38	15
Imports of agricultural goods	2/6
Total from world		105	127	140
From the U.S.		2.9	10.4	10
U.S. share of agricultural imports (%)		2.8	8.2	5
Agricultural goods trade balance with U.S.		-1.6	-6.4	-4.0
Trade balance with three leading partners in 1995	2/6
Brazil		1	85	40
Argentina		-342	-419	-350
U.S.		-159	-231	-268
Principal Exports to U.S.	2/6
4104 Bovine Leather		33.4	46.4
4203 Leather Clothing		15.3	12.9
Accessories		9.9	11.4
6403 Shoes
0304 Frozen Fish Filets
4303 Sheepskin Clothing and Manuf.
Principal Imports from U.S.	2/6
8471 Data Processing
Machines		27	30
8525 Transceivers and Telephones	13	15
9018 Medical Instruments		7	8
8701 Tractors(Agri. and Semi-Trailers	7	8
8703 Passenger Cars		6	7

Sources of data:

1 -National Institute of Statistics (INE)
2 -Central Bank of Uruguay (CB)
5 -Law 7318 of 12/10/1920
6 -Embassy computations based on CB data, GOU economic program submitted to I.M.F and estimates
7 -USAID
8 -Embassy Office of Defense Cooperation

APPENDIX D

Investment - Foreign Investment (US$ 170 million in 1996), is comprised of US$ 100 million of foreign direct investment and US$ 70 million of foreign investment in real state. These figures may underestimate real investemtn as some investments are not registered.

APPENDIX E

U.S. Embassy Trade Related contacts:

American Chamber or Bilateral Business Councils

Horacio Hughes, President
American Chamber of Commerce
Plaza Independencia 831, Of. 209
Tel: (5982) 98-91-86
Fax: (5982) 98-91-87

Graciela Ferreira de Serrentino, President
Asociacion Pro-Intensificacion del Comercio Uruguay-Estados Unidos
APICUE
Graciela Ferreira de Serrentino, President
Rincon 454, Of. 520.
Tel: (5982) 95-18-07; Fax: (5982) 95-79-82

Country Trade or Industry Associations in Key Sectors

Daniel Soloducho, President
Union of Exporters
Rincon 454, piso 2
Montevideo, Uruguay
Tel: (5982) 95-60-50
Fax: (5982) 96-11-17

Diego Balestra, President
Chamber of Industries
Av. Libertador Lavalleja 1672
Montevideo, Uruguay
Tel: (5982) 91-50-00
Fax: (5982) 92-25-67

Ambrosio Bertolotti, President
Uruguayan Chamber of Commerce
Rincon 454
Montevideo, Uruguay
Tel: (5982) 96-12-77
Fax: (5982) 96-12-43

Country Government Offices Relating to Key Sectors and/or Significant Trade Related Activities

Ministry of Industry, Energy, and Mining
Rincon 747
Montevideo, Uruguay
Tel: (5982) 90-02-31
Fax: (5982) 92-12-45

Ministry of Economy and Finance
Colonia 1089, Piso 3
Montevideo, Uruguay
Tel: (5982) 92-10-17
Fax: (5982) 91-38-20

Ministry of Tourism
Av. del Libertador 1409, Piso 4-6
Montevideo, Uruguay
Tel: (5982) 90-41-48
Fax: (5982) 92-16-24

Ministry of Transport and Public Works
Rincon 561
Montevideo, Uruguay
Tel: (5982) 95-73-86
Fax: (5982) 96-28-93

Ministry of Agriculture and Fishing
Constituyente 1476
Montevideo, Uruguay
Tel: (5982) 48-22-56
Fax: (5982) 49-96-23

Country Market Research Firms

AIM/BURKE-ADD
Colonia 933, Piso 4
Montevideo, Uruguay
Tel: (5982) 92-64-70; Fax: (5982) 92-19-11

Coopers & Lybrand
Treinta y Tres 1374, Piso 5
Montevideo, Uruguay
Tel: (5982) 96-08-20; Fax: (5982) 96-33-81

Equipos Consultores
Bulevar Artigas 1098
Montevideo, Uruguay
Tel: (5982) 77-26-98; Fax: (5982) 78-65-99

Ernst & Young
18 de Julio 984, Piso 4
Montevideo, Uruguay
Tel: (5982) 92-31-47; Fax: (5982) 92-13-31

Oikos Consultora
Soriano 898, Esc. 401
Montevideo, Uruguay
Tel: (5982) 90-15-04; Fax: (5982) 91-39-75

Montaldo y Associados
18 de Julio 841, Esc. 301
Montevideo, Uruguay
Tel: (5982) 92-09-44; Fax: (5982) 92-17-16

Country Commercial Banks

Commercial banks operating in Uruguay include: ABN/AMRO, American Express, Banesto, Centro Hispano Banco, Citibank, Banco Comercial, Bank of Boston, Discount Bank, Republic National Bank of New York, Lloyds Bank, Caja Obrera, Pan de Azucar, de la Republica, Hipotecario, de Credito, de la Nacion Argentina, de Montevideo, do Brasil, Exterior, ING, Real, Santander, Sudameris and Surinvest.

Multilateral Development Bank Offices in Country

Inter-American Development Bank (IDB)
Andes 1365
Montevideo, Uruguay
Tel: (5982) 90-05-08
Fax: (5982) 92-15-56

Others:

TPCC
Trade Information Center in Washington
Tel: 1-800-USA-TRADE

U.S. Department of State
Office of the Coordinator for Business Affairs:
Tel: (202) 746-1625; Fax: (202) 647-3953

U.S. Department of State
Uruguay Desk Officer
Tel: (202) 647-2296

U.S. Department of Commerce
Uruguay Desk Officer
Tel: (202) 482-0703; Fax: 202-482-4157

U.S. Department of Agriculture
Foreign Agriculture Service
Trade assistance and Promotion Office
Tel: (202) 720-7420

U.S.-based Multipliers Relevant for Country

Uruguay Trade Office in New York
747 3rd Avenue, 37th floor
New York, NY 10017
Tel: (212) 751-7137/7138
Fax: (212) 758-4126

Uruguay-U.S. Chamber of Commerce, Inc. of New York
c/o Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Tel: (212) 504-6619

APPENDIX F

Market Research

The Embassy does not prepare complete market research reports but can arrange with a private contractor to do so at a client's request. The Embassy, however, reports International Market Insights on an ad hoc basis to the U.S. Department of Commerce's National Trade Data Bank. Subjects currently reported include: electric frequency conversion and other energy-related projects, construction and operation of commuter railroads, gas storage projects, auto import overview, insurance industry reform, oil company registration regulations, bridge construction project, construction and operation of gas pipelines, hospital construction, several sanitation projects, and airport renovation projects.

The Embassy also prepares Industry Sector Analyses on the following growth sectors which are best prospects for U.S. exporters: Forestry, Medical Equipment, Agro-industries and Tourism.

APPENDIX G

Trade Event Schedule

One regularly scheduled trade events of interest to U.S. companies are the Prado Agro-Industrial and Commercial Fair which takes place each year during the two middle weeks of September, and the Feria Internacional del Plata (FIPLA) which takes place every other year in May. The next FIPLA fair will take place in May 1998. Uruguay is also a regularly scheduled stop in several catalog shows organized by the U.S. Department of Commerce.

Sponsored by the U.S. Department of Commerce, the Embassy organizes a U.S. Pavilion in the Prado International Agro-Industrial and Commercial Fair. Last year the prizewinning U.S. Pavilion was host to over forty U.S. companies which promoted their products and services. Attendance at this exposition was calculated at over 500,000 by Fair authorities. Many other nations also have pavilions along with those of local companies. Participation in this fair is an excellent opportunity to introduce U.S. products and services, especially consumer products, to the local market.

The Embassy also organizes a smaller U.S. section in the FIPLA fair. This fair is a more traditional business-oriented event and its target audience is the Southern Cone (Brazil, Argentina, Paraguay) businessman.

U.S. firms interested in participating in fairs in Uruguay should consult the Export Promotion Calendar on the NTDB, the nearest department of Commerce District Office, or contact the Embassy's Commercial Section (Tel: 5982-40-63-28) for the latest information or to arrange individual trade programs.

*International Copyright, United States Government, 1997 ( or other year of first publication.) All Rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside of the United States. United States copyright is not asserted under the United States Copyright Law, Title 17, United States Code.

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