Not too many people know Uruguay and even less about Uruguay. It's not like it is a hot tourist attraction or a place with intolerable social conflicts or ravaged by a deadly disease or in the middle of bloody civil war. In reality Uruguay is typically in the circles of people "who know" as a place that nothing ever happens. Uruguay used to be a breath of fresh air in the middle of the oppressing tidal wave of other Latin American countries. So much so that Uruguay was called the Switzerland of Latin America. Free people, free banks, free environments, very little government… in a word, free! But that's all in the past. The future has arrived!
POLITICS OF THE PAST
To a large degree Uruguay's stability was due to the fact that it was predominantly a two party country. The Colorado and National parties used to battle in elections and divvy-up the country. This one you, the next one me, and so on. Nothing much was going on. Both parties were conservative, pro-people-that-counts-only and let the rest be. They were typical governments "managed" by big money. A lot of privileges for them and very little for the people. And yes, poverty was rampant although it never reached slump levels.
THE FUTURE IS NOW
As is to be expected, when a new "coalition" of "popular" forces showed up in the horizon and promised the "re-distribution of wealth", people evolved politically. This much was inevitable. Uruguayans were stuck with a political view that originated in the 1800's and they were ripe for change. Who can blame them! The only "tiny" problem is what they put in power. They "elevated" to the "highest echelons" of "government authority" the "Encuentro Progresista - Frente Amplio - Nueva Mayoria" party.
Note: the name of the party translates loosely as "Progressive Meeting - Broad Front - New Majority". We will call them BF for short.
And what is the BF composed of? The usual suspects:
- Socialists
- Ex-Tupamaros (former communist terrorist guerrillas)
- Social Democrats
- Christian Democrats
- In other words, Socialists to Communists.
THE SITUATION
Because of the laissez-faire attitude of previous governments, Uruguay was always viewed as a safe haven for endangered capitals. Basically, anybody hiding money from taxation in Latin America (typically Brazil and above all Argentina) placed their eggs (so to speak) in Uruguay where they were well guarded. But something happened in 2004 on the way to the tax heaven, the BF party got to power and they immediately got to work. As good communists they spent, spent, spent and then they spent some more. Let's take a look at the graph below.
The red line represents the change in GDP as a percentage. The green line represents the change in government expenditure as percentage. What is interesting is not that both fluctuate, but that the green line is consistently above the red line. Think of it this way. Let's say that you earn 1000 Bolivars per month. Every month you get a raise of 2% but at the same time every month you lose 5% of your salary in horse races. What this means is that in reality and despite of receiving a 2% raise every month, you are bringing back to home 3% less (give or take). Thus, the only way you have to keep spending at that rate and bring back the entire salary is to borrow an extra 3% every month. The problem is that the 3% accumulates and we can see this in the following graph.
Notice how the red line keeps growing and growing and growing. The current situation is that the Uruguayan debt is roughly 120% of its GDP. This essentially means that it is un-payable. This is so much so that even the IMF (International Monetary Funds) say so and its forecast so reflects.
WHAT TO DO?
Oh… what to do…what to do? Let's see. According to the unholy trinity the Uruguayan government has already borrowed to the top and beyond. This cannot be increased. The Uruguayan government is already printing at a rate of roughly about 6% per year. Higher inflation would decimate the economy. Most Uruguayan people are already taxed to the max… Humm…. What to do? What to do?
Hold on, we know!
There are suckers all over Uruguay. Those idiots that decided to bring their money here assuming this is the equivalent of Switzerland! Let's tax them to the max.
FIRST THINGS FIRST
The only problem with taxing investors is that well… they won't like it. They may take their money and run. It happened in 2002 and it almost brought the entire Uruguayan Banking system to its knees. We don't want a repeat. So we have to find suckers who can't run.
Hummm…. who has money invested in Uruguay that cannot be easily converted into cash? All those suckers investing in Real Estate! Perfect! But there is a problem. Those people are not stupid. They transact in cash and do not to leave any traces. We can't have that.
Enter the Financial Inclusion Act (No.19.210). According to this act almost all transactions in Uruguay must now be transacted exclusively through electronic means. In particular it is now forbidden to purchase or lent real estate on a cash basis. This law was "recommended" by the G20 (group of usual suspects) to "universalize" the access to financial systems, to promote savings and…to "fight" money laundering. But of course the propaganda machine in Uruguay is "forgetting" to mention this last part.
WHO ARE YOU?
Then we have the Technical Convergence in Terms of International Fiscal Transparency Act (No. 18930), which basically destroys the anonymity of all (that's right, all) anonymous corporations. Once enacted all shareholders must ID themselves to the Central Uruguayan bank or their companies will simply be decommissioned. If you consider that all those anonymous corporations were incorporated under the law, that they did not break any regulation whatsoever, how is the Uruguayan government justifying such as drastic punishment? Oh… according to them it is not a punishment but simply a "clean up" operation of inactive corporations (no, we are not kidding). Yeah… sure… whatever.
THE TRAP CLOSES
Basically, the Uruguayan government will know who you are and every single transaction you execute. And the question is of course why? Why are such draconian measures necessary? As far as we can tell there is no active terrorist group threatening Uruguay nor is Uruguay engaged in war, civil or otherwise. Why is all this necessary? Simple: taxes. The rest is just bull-shit smoke and mirrors.
We told you that this will happen. We explained that Argentina has had something similar in place for over a decade. They were the trailblazers. Uruguay is simply a repeat. Do you think this won't happen to you? Think again. Socialist policies make un-avoidable the bankruptcy of all governments. Long before we reach that point, the unholy trinity will be placed on overdrive. Everything goes. They will do as Uruguay is doing. Some laws will be passed in the dead of night. Some laws will be sold to you under false pretences and some laws will simply be passed. Tough luck!
CONCLUSION
Uruguay is simply a follow-up of what awaits all countries on earth. If you thought you could get away with a cash economy, think again. For any intent and purpose, they have outlawed cash in Uruguay.
But perhaps you don't feel threatened with your government knowing who you are what you do with your cash down to a minute detail. This is so because you have nothing to hide. Besides, it's not like your money and your life are actually yours, right?
Note: please see the Glossary if you are unfamiliar with certain words.
