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Pension Tension
Uruguay is heading towards a pivotal vote on October 27th, but it’s not just about electing the next president. This time, voters will also weigh in on a plebiscite that could reshape the nation’s pension system—backtracking on key reforms passed in 2023. This referendum, spearheaded by the trade union PIT-CNT, has sparked intense debate about the country’s financial future and could unravel the fiscal gains Uruguay has made if passed.
In 2023, under current President Lacalle Pou’s leadership, Uruguay passed a series of pension reforms aimed at strengthening its financial position. These reforms included raising the retirement age from 60 to 65, modifying the mixed pension system and reducing the social security assistance tax. These measures led to a significant improvement in Uruguay’s fiscal outlook, and coupled with an improved monetary policy framework, helped earn the country a credit rating upgrade.
However, in early 2024, the PIT-CNT union introduced the idea of a plebiscite to overturn these reforms. After gathering enough signatures, they successfully placed the referendum on the ballot, setting the stage for the crucial decision later this month.
The plebiscite proposes three main changes:
The current administration has strongly opposed the pension plebiscite, a stance echoed by candidate Alvaro Delgado of the incumbent center right Partido Nacional. Opposition candidate, Yamandu Orsi of the center left Amplio coalition, also disagrees with the plebiscite but has been less outspoken about it. The economic impact of these proposed changes is substantial, as they threaten to increase the pension deficit and undermine the fiscal stability the country has worked so hard to achieve in recent years. Foreign investor confidence would also likely fall sharply.
A Close Call
Polls reveal a tight presidential race alongside mixed opinions on the plebiscite. While support for rolling back pension reform has dipped, it remains robust. A notable share of the electorate remains undecided, leaving the outcome uncertain.
Historically, plebiscites in Uruguay have been unsuccessful, partly due to the high hurdle to vote in favor of it. Voters can only cast 'yes' ballots, and for the plebiscite to pass, more than 50% of the total votes in the general election must be in favor. This means that if voters neglect to cast a 'yes' vote—whether because they oppose the plebiscite, are undecided, or are simply unaware of it—their vote effectively counts as a 'no,' boosting the chances of rejection.
The Uruguayan peso has been under pressure recently, reflecting market concerns over the fiscal consequences of the plebiscite. With both the presidency and the future of the pension system at stake, October 27th will be a decisive moment for Uruguay.
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