Only a day before the first left-leaning government in Uruguay's history faced its first Cabinet crisis, political analyst Carlos Pauletti told Emerging Markets that the coalition government is "like a symphony orchestra in which everyone is playing from their own scores, and you can't tell if the conductor can or wants to harmonize the music or not." On August 29 when President Tabare Vazquez abruptly and undiplomatically ordered Economy Minister Danilo Astori back to the drawing board to increase the budgeted spending on education from 4.1% to the 4.5% he had promised in the election campaign, the minister threatened to pack up his instrument.
The crisis, which had political observers shaking their heads, took on operatic overtones when Jose Mujica, the former Tupamaro guerrilla leader who is now minister of livestock, agriculture and fishing, explained with tears in his eyes, that he had personally appealed to Astori to stay on. The two ministers have clashed over the last seven months, but Mujica declared that in the aftermath of the crisis they are closer than ever.
And the band seems to be playing on. For now.
Maestro
Uruguayans breathed a sigh of relief. As Montevideo-based political commentator and Latin American syndicated columnist Danilo Arbilla said, "Astori is the key; if he were to leave, Uruguay could face real, serious problems." Mujica was even more explicit: "If he went we would face a [bank] run that we wouldn't be able to stop, and the minister who succeeded him would have to adopt right-wing, very tough measures."
The 65-year-old economist who has been a life-long member of the Socialist Party is the very picture of "central casting send the wise, mild-mannered economics professor," something he has been for decades – and continues to be. But insiders advise not to be fooled: he has been in politics for a long time and could also give some courses on bureaucratic infighting. In fact, as the new government was preparing its five-year budget, the minister was developing something of a reputation for being "inflexible" – not a characteristic easily digested by the multi-flavoured Frente Amplio governing coalition.
Even so, commentators believe that he has several important assets besides the credibility he has gained in the international financial community. Arbilla does some back-of-the-napkin arithmetic and concludes that in Uruguay, a country split right down the middle between conservatives and leftists of various stripes, Astori has the full support of the former and half of the latter. In fact, former president Julio Maria Sanguinetti recently claimed that the opposition "lights candles that he doesn't fall".
Moreover, until the 0.3% difference in the education appropriation became a battleground, Astori had unprecedented support from President Vazquez. Asked about the collision the day after, Astori told Emerging Markets, "You can't win all the battles, but you do have to be determined to win the most important ones. The discussion of the budget is very important. I just returned from a meeting with the president and, of course, we took decisions that are coherent with the commitments we assumed both with international organizations and with the country's education system, which is a very important priority for us. Uruguay has chances to prove that it is possible to govern with a broad alliance and at the same time attract investment. It is our great challenge to make these goals compatible."
In the short period since the Frente Amplio took over the government in March, Astori has wracked up some impressive victories.
Fund music
The first big notch in his belt came in June when Uruguay, following a very rapid negotiation, signed a three-year agreement with the IMF. The 2005–08 pact foresees growth at an average of 4% a year, inflation receding to 3.5% by end-2008, increasing exports and international reserves. The primary surplus target, reduced in the coming two years to provide emergency social support to the one-third of Uruguayans living below the poverty line, is to reach 4% of GDP in the last years of the programme.
While Astori doesn't deny that the programme is ambitious and requires sacrifice, he insists that the Fund was "very sympathetic or, at least, understood that this is a government with a new political position". He said, "In reality the programme with the Fund is the programme of the government; it is not the Fund's programme."
Moreover, the smooth relations with the IMF, the minister said, paved the way for five-year programmes with the World Bank and the Inter-American Development Bank and, even more importantly, in capital markets. "Uruguay has gained with this greater confidence, and the proof is that we have had two successful forays into voluntary capital markets, first placing $500 million and later E300 million, which has made it possible to already fill the 2005 financial gap as well as about 60% of that for 2006."
The programme also includes daunting structural reforms such as granting greater independence to the Central Bank and improving its institutional performance along with that of other state-controlled banks, tax reform and a transformation of tax administration, as well as a restructuring of the budgetary process. Finally, Uruguay is pressed to create a more attractive investment climate. In that regard, Astori thinks that the country has a clear list of imperatives, including making it plain
that there are rules of the game that the government is committed to defending, and legal reforms in areas such as the defence of competition and the bankruptcy code.
Atonal
However, businesses still doubt if Astori's libretto will be followed by the cacophonous congress and the enigmatic president. They hear mixed signals such as recent statements justifying factory takeovers, strong discrepancies over exchange-rate policy, and a confusing posture with regard to wage pressures. There is also a noisy squabble over an investment protection treaty with the United States, Uruguay's main trading partner.
Yale educated political scientist Luis Eduardo Gonzalez told Mercado & Economia that the decibel level is part of the government's atonal style. Up to now, he emphasized, the president has been able to play a dual role as referee and final decision-maker without endangering his leadership. No one in the coalition, he asserts, "wants to risk initiatives that could put in danger the governing ability of the government."
But as former economy minister Ignacio de Posadas said, "The greatest challenge, although not a technical economic matter, is the enormous expectations raised by this government." Citing the disappointments engendered by left-leaning governments in other Latin American countries, above all in Brazil, he underscored the importance for all Uruguayans of all political persuasions that the Frente Amplia succeed.
Many Uruguayans are convinced that, for that outcome to materialize, the factions that make up the coalition's chorus will have to learn to sing on key and accept that the virtuoso role belongs to Danilo Astori.