The problem in context

Uruguay is a small South American country lying between Brazil and Argentina. In relation to the rest of the continent, it is a small country with a land surface of approximately 176,000 sq km; it is also small in demographic terms – its population is only 3 million – and in economic terms – gross domestic product (GDP) in 1998 was around US$23 billion. However, Uruguayan society enjoys high social integration and low levels of inequality.

As in other countries, the services sector represents two-thirds of employment and about 60% of GDP. During the 1990s the sector was an engine for national exports and its share in the total volume of exports increased threefold. Uruguay is a net exporter of commercial services (travel, transport and ‘other commercial services’), which account for 34% of global exports (the average for Latin American countries is 20%). Those classified under ‘other services’, including communications, construction, financial intermediation, business services, information technology-related services, as well as royalties and property rights, have been the most dynamic.

The international expansion of the services sector seems to be a promising alternative to the exploitation of the country's natural resources. Yet the small size of its domestic market poses a challenge to efforts to liberalize the sector. Deregulation should be followed by re-regulation in order to ensure the effective operation of competition in the domestic market. The decision-making process needs to be founded on a sound basis (with good regulatory frameworks and appropriate institutions), with appropriate evaluations of risks and opportunities.