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Uruguay's well-to-do economy is characterized by an export-oriented agricultural sector, a well-educated workforce, and high levels of social spending. After averaging growth of 5% annually during 1996-98, in 1999-2002 the economy suffered a major downturn, stemming largely from the spillover effects of the economic problems of its large neighbors, Argentina and Brazil. For instance, in 2001-02 massive withdrawals by Argentina of dollars deposited in Uruguayan banks led to a plunge in the Uruguyan peso and a massive rise in unemployment. Total GDP in these four years dropped by nearly 20%, with 2002 the worst year due to the serious banking crisis. Unemployment rose to nearly 20% in 2002, inflation surged, and the burden of external debt doubled. Cooperation with the IMF and the US has limited the damage. The debt swap with private creditors carried out in 2003, which extended the maturity dates on nearly half of Uruguay's $11.3 billion in public debt, substantially alleviated the country's amortization burden in the coming years and restored public confidence. The economy is expected to resume growth in 2004 (perhaps 4% or more) as a result of high commodity prices for Uruguayan exports, the weakness of the dollar against the euro, growth in the region, low international interest rates, and greater export competitiveness. On the negative side, in December 2003 the electorate voted to repeal the law permitting a cautious liberalization of the energy industry.
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