Exhibit 99.D

Description of
República Oriental del Uruguay
June 9, 2009

TABLE OF CONTENTS

		PAGE
INTRODUCTION		D-3
SUMMARY		D-5
REPUBLICA ORIENTAL DEL URUGUAY		D-6
THE ECONOMY		D-11
GROSS DOMESTIC PRODUCT AND STRUCTURE		D-23
FOREIGN MERCHANDISE TRADE		D-37
FOREIGN TRADE ON SERVICES		D-42
BALANCE OF PAYMENTS		D-44
MONETARY POLICY AND INFLATION		D-49
THE BANKING SECTOR		D-55
SECURITIES MARKETS		D-67
PUBLIC SECTOR FINANCES		D-68
FISCAL POLICY		D-74
PUBLIC SECTOR DEBT		D-79
TABLES AND SUPPLEMENTAL INFORMATION		D-91

INTRODUCTION

All references in this document to the "government" are to the government of the República Oriental del Uruguay ("Uruguay") and references to the "central government" are to the central government of Uruguay (which includes governmental agencies and subdivisions and excludes financial and non-financial public sector institutions). All references in this document to the "consolidated public sector" are to the central government and financial and non-financial public sector institutions, excluding Banco de la República Oriental del Uruguay and Banco Hipotecario.

The terms set forth below have the following meanings for the purposes of this document:

• Gross domestic product, or GDP, means the total value of final products and services produced in Uruguay during the relevant period, using nominal prices. Real GDP instead measures GDP based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central del Uruguay ("Banco Central") in March 2009) to eliminate distortions introduced by changes in relative prices.

• Imports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon entry of goods into Uruguay on a cost, insurance and freight included basis (referred to as CIF basis) and (2) for purposes of balance of payments, statistics collected on a free on board basis at a given departure location (referred to as FOB basis).

• Exports are calculated based upon (1) for purposes of foreign trade, statistics reported to Uruguayan customs upon departure of goods from Uruguay on a free on board, or FOB, basis and (2) for purposes of balance of payments, statistics collected on a free on board, or FOB, basis.

• Rate of inflation or inflation rate is measured by the December to December percentage change in the consumer price index or CPI, unless otherwise specified. The CPI is calculated on a weighted basket of consumer goods and services using a monthly averaging method. December to December rates are calculated by comparing the indices for the later December against the indices for the prior December.

References herein to "US$," "$," "U.S. dollars" or "dollars" are to United States dollars. References herein to "Uruguayan pesos," "pesos," or "Ps." are to the lawful currency of Uruguay. Unless otherwise stated, Uruguay has converted historical amounts translated into U.S. dollars or pesos at historical annual average exchange rates. References to "Euro" or "€" are to the lawful currency of the Member States of the European Union that have adopted the single currency in accordance with the treaty establishing the European Community, as amended by the Treaty on European Union. References to "JPY" or "yen" or "¥" are to Japanese yen. Translations of pesos to dollars, Euros or yen (or dollars to Euros or yen) have been made for the convenience of the reader only and should not be construed as a representation that the amounts in question have been, could have been or could be converted into dollars or yen at any particular rate or at all.

The Federal Reserve Bank of New York does not report a noon buying rate for Uruguayan pesos.

The fiscal year of the government ends December 31. Accordingly, all annual information presented herein is based upon January 1 to December 31 periods, unless otherwise indicated. Totals in some tables in this document may differ from the sum of the individual items in those tables due to rounding.

Uruguay’s official financial and economic statistics are subject to a review process by Banco Central and the Uruguay National Statistics Institute. Accordingly, the financial and economic information in this document may be subsequently adjusted or revised. Certain of the information and data contained herein for 2006, 2007 and 2008 is preliminary, and subject to further adjustment or revision. The government believes that this practice is substantially similar to the practices of many industrialized nations. The government does not expect revisions to be material, but cannot assure you that material changes will not be made.

SUMMARY

		2004				2005				2006(1)				2007(1)				2008(1)
THE ECONOMY
GDP (in millions of US$ at nominal prices)(2)		US$	13,712			US$	17,403			US$	20,074			US$	24,313			US$	32,208
Real GDP (in thousands of constant 2005 pesos)(2)		Ps.	395,513			Ps.	425,018			Ps.	444,774			Ps.	478,495			Ps.	521,073
% change from prior year			5.0	%			7.5	%			4.6	%			7.6	%			8.9	%
Consumer price index or CPI (annual rate of change)			7.6	%			4.9	%			6.4	%			8.5	%			9.2	%
Wholesale price index or WPI (annual rate of change)			5.1	%			(2.2	)%			8.2	%			16.1	%			6.4	%
Unemployment rate (urban annual average) (3)			13.1	%			12.2	%			11.4	%			9.6	%			7.9	%
Balance of payments(4)
Trade balance (merchandise)			152.8				20.8				(498.7	)			(554.8	)			(1,554.5	)
Current account			3.1				42.3				(391.9	)			(80.5	)			(1,119.0	)
Capital and financial account net			72.1				752.1				528.0				1,684.6				3,278.4
Errors and omissions(5)			379.1				(174.1	)			(151.5	)			(598.7	)			73.1
Overall balance of payments excluding impact of gold valuation adjustment			454.3				620.3				(15.4	)			1,005.4				2,232.5
Change in Banco Central international reserve assets (period end)			(454.3	)			(620.3	)			15.4				(1,005.4	)			(2,232.5	)
Banco Central international reserve assets (period end)(6)			2,512	(7)			3,078	(8)			3,091	(9)			4,121	(10)			6,360	(11)
PUBLIC FINANCE
Central Government revenue			2,666				3,365				3,959				4,588				5,842
Central Government expenditure			3,018				3,676				4,186				5,031				6,283
Central Government surplus (deficit)			(351	)			(311	)			(227	)			(443	)			(441	)
Overall public sector surplus (deficit)(12)			(254	)			(142	)			(194	)			(134	)			(610	)
PUBLIC DEBT
Consolidated public sector debt
Debt with non-residents			10,206				10,177				9,311				11,065				10,742
Debt with residents			3,116				3,773				4,405				5,254				5,794
Total			13,322				13,949				13,717				16,319				16,535
As a % of GDP			97.15	%			80.16	%			68.33	%			67.12	%			51.34	%
Consolidated public sector debt service
Amortizations			821				1,114				4,211	(13)			361				789
Interest payments			491				584				655				670				604
Total			1,312				1,698				4,866				1,031				1393
As a % of exports of goods and services			30.5	%			33.4	%			83.9	%			15.1	%			15.0	%

REPÚBLICA ORIENTAL DEL URUGUAY

Territory and Population

Uruguay is located in the southern, subtropical zone of South America, bordering Argentina to the west and Brazil to the northeast. Its territory covers an area of approximately 176,000 square kilometers with a 500-kilometer coastline along the Atlantic Ocean and the Río de la Plata. Uruguay’s major cities are Montevideo, the nation’s capital and main port, Paysandú, Salto and Las Piedras.

Uruguay’s population of approximately 3.4 million is primarily of European origin and has a literacy rate of 98%. Approximately 89% of the population lives in urban areas and about 42% of the population resides in the Montevideo metropolitan area. According to the most recent national census, the population growth rate averaged 0.6% per year for the period from 1985 to 1996, and is the lowest in South America. Uruguay is generally considered a middle-income developing country. The following table sets forth comparative GNP figures and selected other comparative statistics as of 2007 unless otherwise indicated.

		Uruguay				Brazil				Chile				Venezuela				Mexico				United States
Per capita GNI(1)		US$	6,380			US$	5,910			US$	8,350			US$	7,320			US$	8,340			US$	46,040
PPP GNI per capita(2)		US$	11,040			US$	9,370			US$	12,590			US$	11,920			US$	12,580			US$	45,850
Life expectancy at birth(3)			76				72				78				74				74				78
Adult illiteracy rate(4) (5)			2.0	%			11.1	%			3.5	%			6.0	%			7.4	%			n.a.
Infant mortality per 1000 live births			13				24				7				17				17				6

Constitution, Government and Political Parties

Uruguay is organized politically as a republic and is geographically divided into 19 departments (districts). The 1967 Constitution, which was last amended in 2004, provides for a presidential system of government composed of three branches: executive, legislative, and judiciary. The president heads the executive branch and is chief of staff and commander of the armed forces. The president is elected by direct popular vote for a period of five years and may not seek re-election for consecutive terms. Under Uruguay’s electoral system established under the 1996 constitutional reform, each political party selects a single candidate for presidential elections. If no candidate wins more than 50% of the vote in the first round of elections, a run-off between the two leading candidates is held. The legislative branch is composed of a 31-member Senate and a 99-member Chamber of Deputies, which together constitute the Congress. Members of Congress are elected every five years by direct popular vote under a system of proportional representation. The Supreme Court is composed of five judges appointed for 10-year terms by the Congress. The Supreme Court has jurisdiction over selected constitutional matters and appellate jurisdiction over decisions rendered by lower courts. Uruguay’s judicial system consists of trial and appellate courts with jurisdiction in each case over civil, criminal,

family and labor matters. In addition, Uruguay has an administrative court system with jurisdiction over a number of public sector matters.

Uruguay has been a democratic country throughout most of its history since it became an independent nation in 1825. The country’s democratic tradition was interrupted twice during the last century: once briefly in the 1930’s and again during the period from 1973 to 1985. In June 1973, a military junta took over power, dissolved Congress, and suspended all voting activity. Military rule continued until November 1984, when democratic elections were held and voters elected Julio María Sanguinetti as president.

Politics in Uruguay are dominated by three political parties: the Frente Amplio (Broad Front), the Partido Colorado and the Partido Nacional. Since appearing on Uruguay’s political landscape in 1971 as a coalition of, among others, the Christian Democratic, Socialist and Communist parties, the Frente Amplio gained increasing support and, in October 2004, won victories in the presidential and the congressional elections.

Until the 2004 presidential and congressional elections, Uruguay’s two traditional political parties, the Partido Colorado and the Partido Nacional, had alternated holding the presidential office. Each of these two parties is composed of multiple political factions, typically with different political orientations, but without strong ideological differences. The Partido Colorado and the Partido Nacional, which were formed in the 1830s, are both market-oriented and favor trade liberalization and reducing the government’s role in the economy, although some factions within each of those parties favor moderate trade protection and some degree of government intervention. Traditionally, the Partido Nacional has had a strong rural constituency, while the Partido Colorado has drawn most of its support from urban areas. The Frente Amplio advocates a moderate social welfare platform. A fourth political party, the Partido Independiente, is a center-left group which split from the Frente Amplio prior to the 1989 elections.

On October 31, 2004, Mr. Tabaré Vázquez of the Frente Amplio won the national presidential election in the first round of voting with a majority of approximately 51% of the votes cast. The Frente Amplio also captured a majority of both houses of Congress for the first time in the party’s history, in simultaneously held elections.

The Congressional representation of each of the four parties for the 2005-2009 term is as follows:

		Senate								Chamber of Deputies
		Seats				%				Seats				%
Frente Amplio			17				54.8	%			53				53.5	%
Partido Nacional			11				35.5	%			35				35.4	%
Partido Colorado			3				9.7	%			10				10.1	%
Partido Independiente			0				0	%			1				1.0	%
Total			31				100	%			99				100	%

Mr. Vázquez was inaugurated on March 1, 2005. Since 1984, Uruguay’s political transitions following presidential elections have not entailed major economic disruptions. Furthermore, for the first time in almost four decades, the same political party gained control of

the executive branch of the government and held majorities in both houses of Congress. Mr. Vázquez, however, sought to reach consensus with the Partido Colorado, the Partido Nacional and the Partido Independiente with respect to key areas of government, including macroeconomic and social policies, education and foreign relations.

On February 16, 2005, the Frente Amplio set the following goals of economic policy for the 2005-2010 period:

	•		reaching a sustainable level of economic growth supported by a steady development of Uruguay’s productive capacity and productivity;
	•		reducing unemployment and improving the quality of employment; and
	•		advancing the quality of life of the population, focusing on the urgent need to improve the living conditions of the poorest segments of the population.

Presidential and congressional elections will take place in 2009. Open primaries for all political parties will be held on June 28, 2009 to elect a single candidate for each party for the presidential elections. The first round of presidential and congressional elections, in which the three largest national parties (Blanco, Frente Amplio and Nacional) as well as other smaller parties are expected to participate, will take place on October 25, 2009. Tabaré Vazquez is constitutionally barred from running for re-election.

Foreign Policy and Membership in International and Regional Organizations

Uruguay has had no significant regional or international conflicts in recent years. The Republic has focused its foreign policy on international economic, political and legal issues and on the development of international arrangements aimed at improving economic cooperation among nations, conflict resolution and international law. Uruguay maintains diplomatic relations with 137 countries and is a member of 105 international organizations, including:

	•		the United Nations (founding member), including many of its specialized agencies;
	•		the Organization of American States;
	•		the World Trade Organization;
	•		the International Monetary Fund or the IMF;
	•		the International Bank for Reconstruction and Development or the World Bank;
	•		the International Finance Corporation;
	•		the Multilateral Investment Guaranty Agency;
	•		the International Centre for Settlement of Investment Disputes;
	•		the Inter-American Development Bank or the IADB;
	•		the Inter-American Investment Corporation; and
	•		the Corporación Andina de Fomento or the CAF.

Uruguay maintains close ties to its neighboring countries and participates in several regional arrangements designed to promote cooperation in trade and investment. It has been the host country for the Latin American Integration Association, a regional external trade association

that includes ten South American countries in addition to Mexico and Cuba since its creation in 1960.

In March 1991, the governments of Argentina, Brazil, Paraguay and Uruguay signed the Mercosur Treaty. Under the Mercosur Treaty, these four countries originally pledged:

	(1)		to create a full common market in goods, services and factors of production by eliminating or significantly reducing, in some cases over a period of years, import duties, tariffs and other barriers to trade among members; and
	(2)		to establish common external tariffs for trade with non-members.

In December 1994, the four members of Mercosur signed an agreement establishing January 1, 1995 as the deadline for the implementation of a common external tariff intended to transform the region into a customs union. However, it was also agreed that each member country would be entitled to take exceptions to the common external tariffs for a transitional period scheduled to end in 2008 for Argentina and Brazil, and in 2010 for Paraguay and Uruguay. Accordingly, the full implementation of a customs union has been deferred.

In December 1995, Mercosur and the European Union signed a framework agreement for the development of free trade between them. In 1996, Chile and Bolivia agreed to participate in the Mercosur arrangements pursuant to separate free trade agreements. On April 5, 2004, the Andean Community (a customs union among Venezuela, Ecuador, Colombia, Peru and Bolivia) concluded a free trade agreement with Mercosur. The agreement, which was originally agreed to in principle at a summit of the two trading blocs in July 2003, resulted in the creation of a South American free trade area. Mercosur and the European Union are currently engaged in the negotiation of a free trade agreement. While the parties have made progress in several areas, Mercosur has conditioned the agreement upon the European Union making significant concessions with respect to trade in agricultural products and the EU’s common agricultural policy, at least insofar as it impacts Mercosur. Mercosur and the United States, which had suspended negotiations in 2004, have resumed negotiations surrounding the hemisphere-wide Free-Trade of the Americas Agreement (FTAA) pursuant to the 1991 "Four Plus One" Agreement. The negotiations have revealed important differences between the parties, and there can be no assurance that an agreement will be reached within the near term, as originally contemplated. Also during 2004, Mercosur signed framework agreements for the development of bilateral trade with each of India and the Southern African Customs Union. In December 2005, the four original members of Mercosur admitted the Republic of Venezuela to the bloc, with a right to attend all presidential and ministerial level meetings but without the right to vote until all negotiations relating to the adoption by Venezuela of Mercosur’s common external tariff are completed. On December 8, 2005, Mercosur and Israel signed a three-year framework agreement to strengthen relations between the parties, promote the expansion of trade and provide the conditions and mechanisms to negotiate a free trade agreement. In December 2007, Mercosur signed a Free Trade agreement with Israel.

Significant trade imbalances among Mercosur countries developed over time as a result of various factors. These imbalances have prompted discussions and negotiations among the members of the member states that to date have not resulted in the convergence of the national

economies, an objective stated on several occasions pursued. Argentina’s crisis in 2001 and its long-lasting effects have adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. It also triggered the adoption of various safeguard measures and caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by its member states. Uruguay continues to support the long-term objectives contemplated in the Mercosur Treaty, while pursuing measures intended to maximize access to export markets by Uruguayan products in the short and medium term.

Uruguay has entered into the following bilateral treaties related to trade and investment:

2004		United Mexican States		Free Trade Agreement
2004		Iran		Bilateral Trade Framework Agreement
2006		United States of America		Bilateral Investment Promotion Treaty
2007		United States of America		Trade and Investment Framework Agreement
2008		United States of America		Cooperation Agreement in Science and Technology
2008		South Korea		Bilateral Investment Treaty
2009		Chile		Public Procurement Agreement

In April 2007, Uruguay and Chile formed a commission to analyze means of increasing trade and investments between the two countries and both countries are negotiating an investment agreement.

Uruguay and Brazil are currently negotiating an energy cooperation agreement for the development of an electrical transmission line between the two countries. See "Gross Domestic Product and Structure of the Economy — Principal Sectors of the Economy — Electricity, Gas and Water."

THE ECONOMY

History and Background

From the 1930’s through the mid-1970’s, Uruguay followed an import substitution policy coupled with extensive intervention by the government in the economic affairs of the country. The government imposed pervasive controls over domestic goods and financial markets in the form of high tariffs, quantitative trade barriers, price controls, subsidies, and exchange and interest rate restrictions. The government also controlled important areas of the economy, such as communications, railways, air traffic and oil refining and distribution, and developed a comprehensive social security system. Although the economy continued to grow, particularly between 1945 and 1955, the government’s import substitution policy and market controls ultimately distorted the allocation of resources, contributing to inflation and the stagnation of the Uruguayan economy during the second half of the period.

In the mid-1970’s, in response to its poor economic performance, which was aggravated by a worldwide recession, Uruguay launched a series of reforms designed to reduce the government’s role in the economy, increase efficiency and reduce inflation. The government substantially reduced import quotas, price controls and subsidies. It eliminated certain personal income taxes and increased the emphasis on indirect taxation by expanding the coverage of value-added taxes. Most importantly, the government liberalized international financial transactions. Beginning in 1974, Uruguayan residents were permitted to hold foreign assets without restriction and exchange controls were eliminated, in effect making the peso a fully convertible currency. Free repatriation of profits and capital from Uruguay was instituted shortly thereafter.

In response to the liberalization policies pursued from 1975 to 1980, Uruguay’s economy grew at an average annual rate of 4.5% for the period. Rapid growth, however, was accompanied by double-digit inflation. Uruguay’s exchange rate management, which set the monthly rate of devaluation of the Uruguayan peso with respect to the U.S. dollar in accordance with inflation differentials between Uruguay and its main trading partners, contributed to the persistence of high and variable monthly inflation rates. Seeking to reduce inflation, in October 1978, the government abandoned its passive crawling peg policy and introduced an "active" crawling peg policy. This policy consisted of pre-announced exchange rates for a period of six months, which were set at a decreasing rate of devaluation. A surge in private bank lending led to an increase in aggregate demand and to even greater inflation rates, which resulted in the overvaluation of the Uruguayan currency. The overvaluation of the peso and the debt overhang, coupled with a number of negative external developments (including the 1979 oil crisis, rising international interest rates, reduced external demand resulting from the worldwide recession and economic adjustments in Brazil and Argentina), led to loss of confidence in the sustainability of Uruguay’s exchange rate policy. This loss of confidence, given the openness of Uruguay’s financial markets, resulted in massive capital flight.

In November 1982, the government abandoned its system of fixed and pre-announced devaluations and allowed the peso to float, prompting a further peso-to-U.S. dollar depreciation of over 140.0% in the period between November 1982 and March 1983. This depreciation increased the local currency value of U.S. dollar-denominated liabilities, further worsening the

position of debtors (many of whose loans were denominated in U.S. dollars), and increasing the number of non-performing assets of the banking system. The increase in the non-performing assets of the banking system in turn resulted in the failure of many private banks and their de facto nationalization by the government. To improve the condition of the banking system, Banco Central purchased a significant portion of the banks’ non-performing loan portfolios, resulting in heavy losses to Banco Central and aggravating the overall deterioration of the public sector’s fiscal accounts. The consolidated public sector deficit (which includes the central government, Banco Central and the non-financial public sector) reached 12.2% of GDP in 1983. The deficit of Banco Central alone (including assistance provided to the state mortgage bank, Banco Hipotecario), was 8.1% of GDP.

A severe recession followed this financial crisis, with real GDP falling by 16.0% in the 1982—1984 period. Moreover, heavy public sector borrowing, the rise in international interest rates and the global economic slowdown during the period resulted in a deterioration of Uruguay’s external debt situation. In 1982, Uruguay’s ratios of external indebtedness were relatively low: its external debt-to-GDP ratio was 45.0% and its external debt service-to-exports ratio was 50.0%. By 1985, its external debt-to-GDP ratio had risen to 104.0% and external debt service-to-exports ratio had reached 70.0%. Notwithstanding the size of Uruguay’s external debt, the Republic maintained its long-standing tradition of prompt debt service throughout the 1980’s. The country did, however, negotiate a rescheduling of its maturing debt obligations to commercial bank creditors three times during the 1980’s and a debt restructuring within the framework of the Brady Plan in 1991. For more information, see "Public Sector Debt—Debt Service and Debt Restructuring."

A modest economic recovery began in 1985, when real GDP grew by 1.5%. In the following two years, a strong recovery in investment fueled by lower interest rates resulted in real growth rates of 8.9% in 1986 and 7.9% in 1987. During 1988 and 1989, however, Uruguay’s real GDP growth slowed to an annual average of 0.6% due to limits in the operating capacity of the manufacturing sector, a severe drought from late 1988 through 1989 and the adverse impact of the hyperinflation affecting the economies of Argentina and Brazil at the time.

In the early 1990’s, the government took steps to increase private sector involvement in the economy (including foreign investment in previously restricted areas), and reduced the size and influence of the public sector in the economy. Following a modest 0.9% increase in real GDP in 1990, a new recovery began in mid-1991, and real GDP increased steadily between 1991 and 1994 at an average cumulative annual rate of 5.2%.

The economic liberalization policies of the 1990s, while stimulating improvements in productivity and economic growth, also increased the exposure of Uruguay’s economy to regional and international economic developments. The absence of capital controls facilitated a gradual dollarization of the assets and liabilities of the banking system. A loss of investor confidence in certain countries in the region, capital flight and a resulting contraction of economic activity followed the Mexican peso devaluation in December 1994. Argentina, one of Uruguay’s principal trading partners and sources of direct foreign investment, was particularly affected. The contraction in aggregate demand in neighboring countries, particularly Argentina, was coupled with a decrease in Uruguay’s private demand and public sector investment. In 1995, real GDP contracted by 1.4% as compared to 1994.

Uruguay’s economy recovered with real GDP growth of 5.6% in 1996 and 5.0% in 1997. This improvement was mainly a result of the increased exports and growth in gross fixed investment, particularly private sector investment, which in turn stimulated private consumption. Improvement continued in 1998 with real GDP growth of 4.5%. Domestic private consumption increased slightly as a percentage of GDP in 1998, although it remained below 1994 levels. Gross fixed investment also increased as a percentage of GDP in 1998, slightly above 1994 levels. The rate of gross domestic savings as a percentage of GDP increased in 1998, compared to 1997, 1996 and 1995. For the period from 1994 to 1998, private gross fixed investment grew faster than GDP (except in 1994), increasing at an average annual rate of 10.5% from 1994 to 1998. During this period, the financial and insurance services sector grew in real terms and as a percentage of GDP.

The Mercosur Agreements

The execution and implementation of Mercosur represented Uruguay’s single most important foreign trade endeavor, as it was expected to offer Uruguayan companies access to a common market of approximately 200 million people. On January 1, 2000, internal tariff rates among Mercosur countries were reduced to zero, with the exception of sugar and automobiles.

With the establishment of the common external tariff in January 1995, the members of Mercosur agreed to cause a gradual convergence of their respective external trade regulations over a five-year period. A common external tariff became effective on January 1, 2001. However, each member of the Mercosur retained some degree of flexibility intended to gradually allow certain industries to enhance their competitiveness, and had the ability to take specific exceptions to the common external tariff (initially 300 each) over a transitional period. The transitional period is scheduled to end in 2010. Argentina and Brazil are currently entitled to 100 exceptions each and Paraguay and Uruguay are currently entitled to 225 and 649 exceptions, respectively. In the case of the telecommunications, capital goods and information technology products, the Mercosur agreed that Uruguay and Paraguay could take exception through 2010 from the common internal tariff (with rates of 0% and 2%, respectively) with respect to tariff imports of non-Mercosur origin. In addition, the Mercosur countries have agreed to coordinate policies in certain areas, including agriculture, industry, transport and trade in services, to reduce or eliminate imbalances, and several working groups are currently engaged in policy coordination negotiations.

In March 2001, Argentina unilaterally increased import tariffs on consumer goods to 35% and eliminated all import tariffs on capital goods, in each case for non-Mercosur products and on a transitional basis. In June 2001, Argentina further modified its foreign exchange regime to subsidize exports and tax imports. The devaluation of the Argentine peso in January 2002, and other measures taken by the Argentine government brought Argentina’s foreign trade to a virtual standstill in the first quarter of 2002. The Argentine crisis adversely affected trade within Mercosur and with non-Mercosur countries and the timely implementation by Mercosur of the objectives set forth in the Mercosur Treaty of 1991, in particular the customs union. Uruguay maintains certain duties affecting imports of certain Argentine products whose producers are entitled to regional or sectoral subsidies. It also caused indefinite delays in Mercosur’s ability to achieve the macroeconomic coordination and stability sought by the December 2000 understanding on common macroeconomic targets. Uruguay continues to support the long-term

objectives contemplated in the Mercosur Treaty and the December 2000 understanding, recognizing the short and medium-term need to maximize access to other export markets by Uruguayan products.

Certain barriers to the comprehensive regional integration initiated by Mercosur continue to exist. Agriculture border inspections and other bureaucratic border procedures still lack uniformity among Mercosur member countries and are onerous in many instances, causing delays in trade. Rules on intellectual property, antitrust and the environment, among other things, are different in each of the Mercosur countries, and while certain mechanisms for dispute resolution have been established, comprehensive mechanisms are still under development. In December 2002, Mercosur approved common antitrust procedures implementing a 1996 Antitrust protocol. This agreement constitutes a step towards the elimination of antidumping claims among members. Trade in services, such as financial and banking services, has not been uniformly liberalized, with countries like Uruguay having a financial system which is open to non-Uruguayan participants while countries like Brazil allow only limited participation of non-Brazilian banks in their financial system. Roads, bridges and railways must also be developed to further facilitate trade. In December 1997, the Mercosur members agreed to a framework agreement for the liberalization of the provision of services, access to markets and freedom of establishment. The members of the Mercosur meet annually to negotiate the implementation of the 1997 framework agreement. A protocol regarding the provision of services entered into effect in December 2005 and was ratified by Argentina, Brazil and Uruguay. It contemplates the complete elimination of intra—Mercosur restrictions by 2015. The liberalization is effected gradually on the basis of negotiation rounds intended to result in eliminating restrictions by segments with a view to reaching complete liberalization by no later than 2015. See "República Oriental del Uruguay. Foreign Policy and Membership in International and Regional Organizations."

1999-2002: Recession and Crisis in the Banking System

Between 1999 and 2002, a series of external factors, including most significantly the economic crisis that affected Argentina most severely in 2001 and 2002, had material adverse consequences for Uruguay’s economy.

During 1999, Uruguay’s economy was adversely affected by the devaluation of the Brazilian currency, a strong recession in Argentina, which caused a contraction in Argentine demand for Uruguay’s products and tourism-related services, declining international prices for several of Uruguay’s commodity exports, an increase in the price of oil and derivative products, the appreciation of the U.S. dollar (to which the Uruguayan peso was linked), which caused Uruguay’s export products to become less competitive in several of its traditional export markets, increases in international interest rates, and a severe drought in the second half of 1999 that adversely affected the agricultural and related sectors.

As a result of these circumstances, in 1999 real GDP decreased by 2.8%, domestic private consumption declined 1.5% and private gross fixed investment fell by 14.0%. Exports of Uruguayan goods and services also declined by 7.4%. The recession affected most sectors of the economy. The consolidated public sector deficit increased from 0.9% of GDP in 1998 to 3.6% of GDP in 1999, reflecting a decrease in public sector revenues (including social security

revenues) and increases in public sector spending, attributable to a number of infrastructure projects undertaken by the government to mitigate the impact of the recession.

During 2000, most of the adverse conditions that caused real GDP to contract in 1999 continued, including high oil prices, a strong U.S. dollar, Argentina’s recession and increases in international interest rates. Heavy rains in the last quarter of 1999 also adversely affected the agricultural sector. In 2000, real GDP declined by 1.4%, domestic private consumption decreased by 1.6%, private fixed investment declined 14.5%, and government consumption contracted by 0.3%. Inflation for 2000, as measured by the CPI, reached 5.1%, reflecting the impact of increasing international oil prices on the Uruguayan economy. However, the peso depreciated 7.8% in real terms with respect to the U.S. dollar. The consolidated public sector deficit in 2000 reached 3.8% of GDP, as public sector revenues contracted at a faster pace than public sector expenditures.

Adverse external factors continued through 2001. Argentina’s third year of recession and the slowdown in the rate of economic growth of industrialized nations adversely affected Uruguay’s economy. Virtually all sectors of the economy experienced the impact of the recession, with government and private consumption and fixed investments all contracting for a second consecutive year. The recession adversely affected public sector revenues, and the measures taken by the government to reduce expenditures were insufficient to prevent a further deterioration of public sector finances. Real GDP contracted by 3.4%. Domestic private consumption decreased by 2.0%, government consumption decreased by 2.9% and private fixed investment decreased by 8.8%. The consolidated public sector deficit for 2001 reached 3.9% of GDP. On June 19, 2001, Banco Central adjusted the rate of devaluation of the Uruguayan peso from 0.6% to 1.2% per month through December 31, 2001 and widened the band of fluctuation for the peso to U.S. dollar exchange rate from 3.0% to 6.0%. In spite of these adjustments, domestic inflation for 2001, as measured by the CPI, remained at 3.6%, and the peso depreciated 13.0% in real terms with respect to the U.S. dollar. Foreign trade also deteriorated in 2001, with exports contracting by 10.5% (measured in U.S. dollars) and 7.7% in real terms, and imports contracting by 11.7% (measured in U.S. dollars) and 8.8% in real terms, with respect to 2000. Nevertheless, the continued recession appeared not to undermine confidence in Uruguay’s banking system, which continued to attract deposits from residents and non-residents, particularly as volatility in Argentine increased. As of December 31, 2001, approximately 87.3% of total credit extended to the private sector and 91.3% of total deposits held in the private banking system were denominated in foreign currencies (principally the U.S. dollar).

On December 1, 2001, the Argentine government froze deposits held with Argentine banks and introduced exchange controls restricting capital outflows. On December 23, 2001, the Argentine government announced its decision to default on Argentina’s foreign debt. Argentina suffered significant economic, political and social deterioration during 2002. In addition to the government, a significant portion of the country’s large corporate debtors defaulted on all or a substantial part of their financial liabilities. In response to the crisis, the Argentine government undertook a number of far-reaching initiatives, including a mandatory conversion of foreign currency-denominated debts and bank deposits into Argentine pesos and the devaluation of the Argentine peso after ten years of parity with the U.S. dollar.

In 2002, Uruguay’s economy experienced its most significant setback since 1982, with real GDP contracting by 11.0%. The proximate causes of Uruguay’s 2002 economic crisis are associated with Argentina’s economic deterioration during that time. Uruguay’s fiscal imbalances, its dependence on Argentina and Brazil as its principal trading partners and sources of foreign revenues, and rigidities that limited the ability of the economy to absorb and adapt to external factors, added to the severity of the crisis.

Uruguay’s banking system confronted its worst crisis since the 1982-83 crisis. At December 31, 2002, total U.S. dollar deposits of the non-financial private sector with the banking system (excluding off-shore institutions) were US$7,317 million (of which US$2,386 million were of non-residents), compared to US$14,246 million as of December 31, 2001 (of which US$6,592 million were of non-residents). Initially, the increase in deposit withdrawals affected primarily Banco de Galicia Uruguay, or BGU, and Banco Comercial, the country’s two largest private banks, both affiliated with Argentine banks. Banco Central took control of BGU and suspended its operations.

The deposit outflow spread through the rest of Uruguay’s financial system in the second quarter of 2002 leading to the closure of Banco Montevideo/La Caja Obrera, Uruguay’s third largest private bank in June 2002. Although the government received approximately US$500 million from the IMF on June 29, 2002, and provided liquidity assistance to the local banks, confidence in the Uruguayan financial system continued to erode.

The Uruguayan authorities sought the financial assistance of the IMF, the World Bank and the IADB for a program that would safeguard Uruguay’s payment and financial system. On August 4, 2002, Congress passed Law 17,523, known as the Law for the Strengthening of the Financial System. The law (i) provided for the establishment of a fund for the stability of the Uruguayan banking system, the Fondo de Estabilidad del Sistema Bancario, or FESB, (ii) extended to three years the maturities of all U.S. dollar-denominated time deposits held with Banco de la República and Banco Hipotecario, (iii) transferred foreign currency-denominated liabilities of Banco Hipotecario to Banco de la República, and (iv) facilitated the liquidation of insolvent banks.

In furtherance of the program agreed with the IMF, in December 2002, Congress enacted amendments to the banking law aimed at strengthening the banking system. Following the enactment of these amendments, the government completed the reorganization of Banco Comercial, Banco Montevideo and La Caja Obrera into a new commercial bank, Nuevo Banco Comercial. The non-recoverable assets of the three liquidated banks are held by liquidation funds, and the proceeds have been earmarked to satisfy deposits of the liquidated banks that were not assumed by Nuevo Banco Comercial.

Between January 1, 2002 and February 28, 2003, depositors withdrew approximately US$6,833 million from the Uruguayan banking system. Banks responded to depositors’ demands by withdrawing approximately US$1.1 billion in reserves and voluntary deposits held with Banco Central and reducing to practically none the availability of credit. The financial system received assistance for approximately US$2.0 billion from the Uruguayan authorities.

In 2002, the government adopted a series of initiatives intended to reduce its deficit of the public sector. It relied on the access to funding by the IMF and other multilateral agencies to shore up Banco Central’s international reserve assets with the expectation that confidence in the banking system would thereby be restored.

The 2002 economic crisis had profound effects on Uruguay’s monetary and exchange rate policy. The continued devaluation of the Argentine peso and growing uncertainties as to the future of the Brazilian economy increased the risk of a speculative run on the peso. On June 19, 2002, Banco Central allowed the peso to float, abandoning the "crawling peg" system. The devaluation of the peso accelerated in July 2002, dropping to its lowest value of Ps.32.33 per US$1.00 on September 10, 2002. As of December 2002, the peso had depreciated 94.0% in comparison to December 2001, although the year-to-year inflation rate for the same period only reached 25.9%. The depreciation of the peso in turn caused a further deterioration in the quality of the foreign currency-denominated loan portfolio of several financial institutions. It also caused Uruguay’s foreign currency-denominated debt to GDP ratio to rise to 89.1% as of December 31, 2002, while the foreign currency-denominated debt service to exports ratio for 2002 was 33.6%.

The decrease in tax collections attributable to the reduction of GDP, together with the increase in debt service requirements (measured as a percentage of GDP) caused primarily by the devaluation (nearly all of Uruguay’s debt is denominated in foreign currency), practically neutralized the savings achieved by the central government during 2002. As a result, the consolidated public sector deficit for 2002 was approximately 4.1% of GDP. Nevertheless, by reducing expenditures (excluding interest payments), Uruguay’s public sector generated a primary surplus equal to 0.5% of GDP.

2003-2008: Recovery and Economic Growth

Uruguay’s economy stabilized during the second quarter of 2003 and began to recover during the balance of 2003, recording an annual real GDP growth of 0.8%. Growth accelerated in 2004, with real GDP increasing by 5.0%. This improvement was mainly a result of an increase in external demand driven primarily by Argentina’s economic recovery, an increase in the prices of commodities exported by Uruguay, the opening of the U.S. market to Uruguayan beef exports and a recovery in domestic demand spurred by improved consumer and investor confidence. GDP continued to grow at a rate of 7.5% in 2005, 4.6% in 2006, 7.6% in 2007 and 8.9% in 2008.

In 2004, domestic private consumption decreased by 2.7% in real terms, compared to 2003, and represented 68.8% of GDP. In 2005, domestic private consumption increased by 1.3% in real terms compared to 2004, and represented 69.4% of GDP. In 2006, domestic private consumption increased by 7.2% in real terms compared to 2005, and represented 70.3% of GDP. In 2007, domestic private consumption increased by 7.7% in real terms compared to 2006, and represented 68.8% of GDP. In 2008, domestic private consumption increased by 8.8% in real terms compared to 2007, and represented 69.4% of GDP.

Gross fixed investment, which in 2004 represented 14.4% of GDP, increased by 18.9% compared to 2003. In 2005, gross fixed investment also increased by 18.9% compared to 2004,

representing 16.5% of GDP. In 2006, gross fixed investment increased by 14.2% compared to 2005, representing 18.0% of GDP, with private gross fixed investment increasing 16.4%. In 2007, gross fixed investment increased by 6.8% compared to 2006, representing 17.3% of GDP, with private gross fixed investment increasing by 5.8%. In 2008, gross fixed investment increased by 18.1% compared to 2007, representing 18.7% of GDP, with private gross fixed investment increasing by 15.7%.

Gross domestic savings represented 16.7% of GDP in 2004, 17.6% of GDP in 2005, 16.9% of GDP in 2006, 19.0% of GDP in 2007 and 17.9% of GDP in 2008.

Exports of goods and services grew by 23.4% in 2004, 16.0% in 2005, 2.7% in 2006, 8.2% in 2007 and 10.5% in 2008. Imports of goods and services grew by 25.9% in 2004, 9.8% in 2005, 14.8% in 2006, 6.7% in 2007 and 19.9% in 2008.

The successful reprofiling of the government’s foreign currency denominated debt in June 2003 assisted in reducing the uncertainties and volatility that had affected the Uruguayan banking system. The deposits held by the non-financial private sector with the banking system (excluding deposits held with offshore banks and financial houses), have recovered since the 2002 crisis and stood at US$7.7 billion at December 31, 2003, US$8.2 billion at December 31, 2004, US$8.6 billion at December 31, 2005, US$9.4 billion at December 31, 2006, US$10.6 billion at December 31, 2007 and US$12.8 billion at December 31, 2008. Approximately 82% of those deposits were denominated in foreign currencies (primarily U.S. dollars).

During 2003, volatility diminished and the annual consumer price inflation rate dropped to 10.2% compared to 25.9% in 2002. At December 31, 2003, the peso had lost 7.8% of its nominal value with respect to the dollar compared to December 31, 2002, which nevertheless amounted to an appreciation of the peso in real terms. In 2004, annual consumer price inflation fell further to 7.6% in part reflecting the appreciation of the peso. The decline of the U.S. dollar in the international markets as well as the general improvement of the Uruguayan economy contributed to a significant appreciation of the peso in 2004. The downward trend in consumer price inflation continued in 2005, recording an annual rate of 4.9%. Since 2006, the annual rate of inflation has accelerated, reaching 6.4% in 2006, 8.5% in 2007 and 9.19% in 2008. The government’s macroeconomic assumptions for 2009 contemplate a reduction in the rate of inflation as measured by the consumer price index. The rate of inflation for the twelve month period ended April 30, 2009 was 7.1% as measured by the consumer price index.

During 2002 and 2003, Uruguay received assistance from the international financial institutions and applied the proceeds to overcome certain of the constraints on Uruguay’s foreign currency reserves imposed by the crisis affecting the banking sector.

Between March 2002 and December 2004, Uruguay received disbursements for a total of approximately US$3.8 billion from the IMF and other multilateral organizations, and made total principal payments to such entities of only US$744 million.

Uruguay accessed IMF funds through several stand-by facilities, the most recent, initially agreed for a duration of three years in June 2005, for a total of SDR766.3 million (approximately US$1.1 billion) (the "2005 Stand-By Facility"). However, in August and November 2006

Uruguay made two prepayments to the IMF of SDR619.9 million (approximately US$916.4 million) and SDR727 million (approximately US$1.1 billion), respectively, thereby discharging in full all of Uruguay’s outstanding obligations to the IMF. Funds for the prepayment of the obligations were obtained by issuing bonds in the international capital markets as well as from reserves. Subsequent to the IMF’s completion of its final review under the 2005 Stand-By Facility on December 22, 2006, at the request of the Uruguay, the facility was terminated.

In May 2007, the World Bank’s Board of Executive Directors approved a US$100 million credit line for Uruguay under the First Programmatic Reform Implementation Development Policy Program. The program seeks to support the implementation of the government’s economic and social reforms. The World Bank made the proceeds, denominated in Unidades Indexadas (UI), linked to CPI, available to Uruguay in 2008. This was the first time that the World Bank provided local currency financing to a member country. In February 2009, the World Bank approved a US$400 million credit line under the Second Programmatic Reform Implementation Development Policy Program to support the government’s reform program and confront the impact of the international economic crisis.

On July 10, 2008, the CAF approved a credit line for up to US$400 million to support the government’s liability management efforts. Uruguay drew US$200 million under this facility in February 2009.

In April 2009, the IADB approved a US$285 million loan to support the modernization and consolidation of Uruguay’s tax administration and to strengthen the management of the central government administration and the efficiency of public expenditure. Uruguay has not drawn any funds under this loan to date.

The Economic Policies of the Vázquez Administration

The Vázquez administration prioritized macroeconomic stability and adjusted existing policies to the extent needed to pursue its main objectives, which include:

	•		maintaining a prudent fiscal stance, which it recognizes as a condition to long term fiscal sustainability;
	•		preserving the value of the currency and introducing inflation targeting as its principal monetary policy; and
	•		strengthening commercial and political relationships with the Mercosur member countries while continuing to promote opportunities for Uruguayan exports and foreign direct investment in Uruguay in the context of bilateral arrangements that are consistent with the Mercosur agreements.

On December 19, 2005, the President signed into law the five-year budget for the period 2005-2009. The budget reflected the government’s priorities of achieving long-term growth and debt-sustainability balanced with increases in infrastructure and social spending and was based upon revenue projections and contained expenditure ceilings consistent with the economic program that formed the basis for the 2005 Stand-By Facility. See "Public Sector Debt—External Debt".

In an attempt to mitigate social and economic marginalization, and in particular to offset the most severe repercussions of the 2002 crisis on Uruguay’s population, the Vázquez administration created a social assistance program called "Plan de Emergencia" (Emergency Plan) to cover the basic necessities of the poorest segments of the population. A Ministry of Social Development was created to further these policies and provide nutrition and health, housing, employment and education assistance to sectors of the Uruguayan population most affected by this crisis.

In 2007, the Emergency Plan was succeeded by the implementation of the "Plan de Equidad" (Fairness Plan). The Fairness Plan involves a long-term effort to provide for care and development of children and teenagers, by providing support to families in the lowest 20% of income distribution, envisages greater integration of this target population into the formal educational system as a means of combating poverty, provides support for impoverished elderly citizens, and seeks to improve medical support for the poor and to assist impoverished unemployed workers.

Privatizations

While privatizations have not been a major focus of Uruguay’s economic policy, the government has divested or privatized certain state-owned enterprises, such as the gas company servicing Montevideo in 1993, and has taken measures to transfer certain activities, such as sewage, garbage collection, road maintenance and the administration of certain ports and airports, to the private sector through concessions and other similar arrangements. More recently, legislation has been enacted that enabled the government to open various components of the telecommunications and energy and gas sectors to private investment. Proceeds from privatizations have been immaterial to date.

The government is committed to improving the competitiveness of the Uruguayan economy and encouraging private investment by continuing to open a number of areas of the economy previously reserved to public sector enterprises to private investment. Through the Administración Nacional de Telecomunicaciones, or ANTEL, the local telecommunications company, several revenue sharing arrangements with private companies for the installation and operation of certain new telecommunication facilities have been implemented. In February 2001, Congress approved the licensing of cellular phone services and data transmission to private sector providers and opening the telecommunications sector (other than local fixed line services but including long distance) to private sector providers. In December 2002 and May 2004, licenses were granted to Movicom Bell South (now Telefónica) and America Móvil respectively, to provide mobile telephone services. The government has also approved the provision of long distance international telephone services by 18 companies in competition with ANTEL. Fourteen of those companies have commenced operations.

The government also granted the Corporación Nacional Para el Desarrollo, or CND, a state-owned investment corporation, overall responsibility for the administration of a program of public works to be undertaken between 2003 and 2018. CND currently owns the concessions as well as 100% of the shares of Corporación Vial del Uruguay S.A, or CVU, a special-purpose company responsible for the projects. CVU and private companies have to date signed 50 contracts worth US$109 million for the construction of bridges and highways.

In 2001, the government issued a decree approving the provision of postal services by private sector entities in competition with the state-owned postal service. There are numerous companies currently operating in the Uruguayan postal service market.

In 2002, Congress passed a law authorizing the national oil refinery Administración Nacional de Combustibles, Alcohol y Portland , or ANCAP, to associate with private sector enterprises for the purpose of jointly carrying out oil refining and crude oil import activities, and doing away with the existing monopoly by 2006. However, the law was repealed in a plebiscite held on December 7, 2003.

In September 2003, the government granted a 30-year concession to Puerta del Sur S.A. for the management and administration of the Montevideo airport.

In October 2004, a constitutional referendum was approved providing that only state-owned entities may provide services in the water and sewage sectors, however the state is permitted to employ private sector sub-contractors to complete portions of the work.

In July 2007, the government sold 75% of the equity of Pluna Airlines to Leadgate Investment Corporation (45%) and to Sociedad Aeronáutica Oriental S.A. (30%), and retained a 25% stake in the airline. The new company is called Pluna Líneas Aéreas S.A.

In May 2008, the Executive Power enacted Decree 239/08 creating the "Uruguay Round 2009" program to be implemented by ANCAP. This program aims at awarding private sector enterprises with Hydrocarbon Exploration and Exploitation Contracts in off-shore Uruguayan areas, totaling approximately 74,000 square meters. The areas are divided into 11 blocks, each ranging between 4,000 and 8,000 square kilometers in water depths between 50 and 1,450 meters, situated in the Punta del Este basin, the southernmost region of the Pelotas basin and the Oriental Del Plata basin. From December 1, 2008 to April 30, 2009 ANCAP received the interest of prospective bidders and qualification documents. Bids are due between June 15, 2009 and July 1, 2009. ANCAP will open such bids on July 1, 2009 and, subject to the Executive Power’s approval, ANCAP will execute the contracts with the awarded bidders.

The government does not have any current intention to seek any other amendment of the legal framework governing ANCAP’s activities, although it may still encourage ANCAP’s association with private sector firms in accordance with the current legal framework.

Environment

The principal environmental concerns in Uruguay consist of industrial and urban pollution of water and soil. The Uruguayan Constitution provides for the right to a clean environment and Congress has enacted enabling legislation for the protection of the environment, including legislation which created the Ministry of Housing, Zoning and the Environment (Ministerio de Vivienda, Ordenamiento Territorial y Medio Ambiente) in 1990. Under a 1994 environmental law, potentially hazardous projects must be approved by the Ministry of Housing, Zoning and the Environment prior to their implementation. In addition to the Ministry of Housing, Zoning and the Environment, environmental supervision and regulation is carried out through many of the departments of the central government and state and municipal governments. In March 2000, Congress enacted a law creating a National System of

Protected Natural Areas and granting the Executive Power the authority to incorporate, by decree, areas into this system and limit or prohibit certain activities within and around these protected areas.

Uruguay has received financing from the IADB for purposes of improving municipal infrastructure services for garbage collection and sewage treatment. The government presently requires environmental studies to be presented in connection with any proposals for construction and other projects. In addition, all projects financed by the IADB currently require environmental impact studies. Beginning in the late 1980’s, Uruguay also received a series of loans from the IADB to undertake cleaning up Montevideo’s coast, including the shoreline along the Río de la Plata.

In May 2006, Argentina brought a claim to the International Court of Justice ("ICJ") against Uruguay under the Treaty of the Uruguay River, alleging that by authorizing the construction of certain pulp mills in the Fray Bentos region, along the shores of the Uruguay river, Uruguay failed to honor its obligations under the treaty. Argentina claims that the pulp mills will irreparably harm the Uruguay river shore. Argentina sought an injunction, which the ICJ declined to grant. Evidence has been produced and allegations have been made, and a decision regarding the merits of Argentina’s claim is pending.

GROSS DOMESTIC PRODUCT AND STRUCTURE OF THE ECONOMY

The following tables set forth information regarding GDP and expenditures for the periods indicated. The figures included in the table entitled "Gross Domestic Product by Expenditure" are based on current (nominal) prices for each year, whereas the percentage figures included in the table entitled "Change in Gross Domestic Product by Expenditure" are based on 2005 prices (in accordance with the Integral Revision of the National Accounts published by Banco Central in March 2009) to eliminate distortions introduced by changes in relative prices.

GDP and Expenditures
(thousands of 2005 pesos, except as otherwise indicated)

		2004				2005				2006(1)				2007(1)				2008(1)
GDP		Ps.	395,513			Ps.	425,018			Ps.	444,774			Ps.	478,495			Ps.	521,073
Imports of goods and services			110,229				121,018				138,912				148,216				177,691
Total supply of goods and services			505,742				546,037				583,686				626,711				698,764
Exports of goods and services			111,404				129,223				132,725				143,662				158,705
Total goods and services available for domestic expenditures		Ps.	394,348			Ps.	416,814			Ps.	450,962			Ps.	483,050			Ps.	540,059
Allocation of total goods and services:
Consumption (public and private)			324,586				341,591				365,710				392,438				426,836
Gross investment (public and private)			68,942				75,223				85,252				90,611				113,223
Total domestic expenditures		Ps.	393,528			Ps.	416,814			Ps.	450,962			Ps.	483,050			Ps.	540,059
GDP growth (%)			5.0				7.5				4.6				7.6				8.9

Gross Domestic Product by Expenditure
(% of total nominal GDP, unless otherwise indicated)

		2004				2005				2006(1)				2007(1)				2008(1)
Government consumption			11.0	%			10.9	%			11.2	%			11.2	%			11.7	%
Private consumption			68.8				69.4				70.3				68.8				69.4
Gross fixed investment			14.4				16.5				18.0				17.3				18.7
Public sector (% of gross fixed investment)			1.9				3.4				3.0				3.5				5.3
Private sector (% of gross fixed investment)			6.4				13.2				12.8				13.9				18.7
Exports of goods and services			32.1				30.4				29.1				28.0				28.3
Imports of goods and services			29.4				28.5				30.9				28.9				32.3
Savings			16.7				17.6				16.9				19.0				17.9

Change in Gross Domestic Product by Expenditure
(% change from previous year except as otherwise indicated, 2005 prices)

		2004				2005				2006(1)				2007(1)				2008(1)
Government consumption			(2.7	)%			1.3	%			6.0	%			5.0	%			8.6	%
Private consumption			3.9				5.9				7.2				7.7				8.8
Gross fixed investment			18.9				18.9				14.2				6.8				18.1
Public sector (% of gross fixed investment)			6.2				4.0				5.4				11.2				28.1
Private sector (% of gross fixed investment)			23.6				23.5				16.4				5.8				15.7
Exports of goods and services			23.4				16.0				2.7				8.2				10.5
Imports of goods and services			25.9				9.8				14.8				6.7				19.9

Principal Sectors of the Economy

GDP increased by 8.9% in real terms in 2008, by 7.6% in 2007 and by 4.6% in 2006, in each case with respect to the prior year. In spite of the adverse international economic and financial environment, the economy posted a seasonally adjusted rate of growth of 0.8% during the fourth quarter of 2008. High commodity export prices supported the improved performance of the agriculture, livestock and fishing and the manufacturing sectors since 2004. However, the Uruguayan economy relies heavily on services, including the commerce, restaurants and hotels sector, which involves a wide range of tourism services, the financial and insurance sector and the real estate and business services sector. In all, services accounted for approximately 57.4% of GDP in 2008. Manufacturing and agriculture, livestock and fishing also play an important role in the Uruguayan economy and accounted for 24.7% of GDP in 2008.

In 2008, growth was fueled by high commodity prices, external direct investment and, in spite of the international crisis, a favorable regional economic climate. The sectors growing at a pace faster than GDP, were manufacturing, transportation, storage and communications and commerce, restaurants and hotels. The performance of the manufacturing sector reveals increased external demand, while domestic demand remained stable. Growth in manufacturing sector (17.3% in 2008) was driven primarily by producers of cellulose pulp, petrochemicals, foodstuff, wood, dairy products and other basic chemicals. Growth in the commerce, restaurants and hotels sectors (10.5% in 2008) is attributable to increased sales of imported goods and exports of tourism services. The fastest growing sector of Uruguay’s economy in 2008 was transportation, storage and communications (27.1% in 2008). Communications services alone posted a 68% increase, due to a strong growth of mobile technologies. Transports and storage, on their side, reflect not only increased passenger services as well as the fact that Uruguay continues to consolidate its position as a regional pole in logistic and distribution services.

Construction grew 9% in 2008. The public sector increased investment in infrastructure, while the private sector accelerated the development of housing projects in the urban area of Montevideo.

The electricity, gas and water sector contracted by 38.4% in 2008, as a result of the shift from hydroelectrical to oil-based sources of generation due to the drought affecting the Uruguayan basin.

The following tables set forth the components of Uruguay’s GDP and their respective growth rates for the periods indicated. The discussion of the various sectors follows the order in which the sectors are presented in the tables. The percentages and figures included in the table entitled "Gross Domestic Product by Sector" are based on current (nominal) prices for each period, whereas the percentage figures included in the table entitled "Change in Gross Domestic Product by Sector" are based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Gross Domestic Product by Sector
(in millions of US$ and % of GDP, nominal prices)

		2004								2005								2006(1)								2007(1)								2008(1)
Agriculture, livestock and fishing		US$	1,508				11.0	%		US$	1,522				8.7	%		US$	1,726				8.6	%		US$	2,044				8.4	%		US$	2,977				9.2	%
Mining			26				0.2				43				0.2				51				0.3				62				0.3				85				0.3
Manufacturing			2,043				14.9				2,585				14.9				3,024				15.1				3,530				14.5				4,999				15.5
Electricity, gas and water			394				2.9				546				3.1				405				2.0				786				3.2				497				1.5
Construction			613				4.5				964				5.5				1,183				5.9				1,456				6.0				2,040				6.3
Commerce, restaurants and hotels			1,755				12.8				2,214				12.7				2,598				12.9				3,284				13.5				4,557				14.1
Transportation, storage and communications			1,112				8.1				1,440				8.3				1,671				8.3				1,981				8.1				2,818				8.8
Real estate and business services			1,874				13.7				2,386				13.7				2,716				13.5				3,270				13.4				4,224				13.1
Financial and insurance services			730				5.3				935				5.4				1,081				5.4				1,323				5.4				1,589				4.9
Services of the government			1,085				7.9				1,387				8.0				1,647				8.2				1,993				8.2				2,662				8.3
Other community, social and personal services			1,160				8.5				1,508				8.7				1,705				8.5				1,995				8.2				2,630				8.2
Net adjustments for payments made by financial institutions and import tariffs			1,412				10.3				1,874				10.8				2,267				11.3				2,589				10.6				3,129				9.7
GDP (in millions of US$ at nominal prices)(2)		US$	13,712				100	%		US$	17,403				100	%		US$	20,074				100	%		US$	24,313				100	%		US$	32,208				100	%
GDP per capita		US$	4,153							US$	5,264							US$	6,057							US$	7,315							US$	9,660

Change in Gross Domestic Product by Sector
(% change from previous year, 2005 prices)

		2004				2005				2006(1)				2007(1)				2008(1)
Agriculture, livestock and fishing			9.9	%			2.8	%			3.4	%			(5.8	)%			5.5	%
Mining			3.1				20.9				6.6				6.9				9.9
Manufacturing			7.6				11.6				7.9				7.0				17.3
Electricity, gas and water			(12.9	)			5.7				(26.4	)			55.3				(38.4	)
Construction			6.7				15.1				10.1				5.5				9.0
Commerce, restaurants and hotels			9.2				7.6				6.0				12.7				10.5
Transportation, storage and communications			8.8				15.8				8.8				12.2				27.1
Real estate, business, financial and insurance services			1.5				2.8				2.2				6.2				4.8
Other services(2)			1.6				1.3				3.1				3.7				5.1
Total GDP			5.0	%			7.5	%			4.6	%			7.6	%			8.9	%

Agriculture, Livestock and Fishing

Uruguay’s territory consists primarily of vast plains, which, combined with its temperate climate, make the country well suited for agriculture and livestock. This sector grew between 2004 and 2008 driven by cereal and oil production fueled by high international commodity prices, as well as by milk and cattle production. Cereal and oil production grew 8.9% (2004), 3.2% (2005), 15.4% (2006), 2.9% (2007) and 20.3% (2008), primarily as a result of increased soy production during the first years and record production of wheat in each of 2006, 2007 and 2008. Milk and cattle production also increased persistently, with the exception of 2007, as production in that year was affected by adverse climate conditions and a contraction of international markets. However, the existing cattle stock satisfied the increasing external demand.

The following table sets forth the production of selected primary goods for the periods indicated.

Selected Primary Goods Production
(in millions of US$, except as otherwise indicated)

		2004				2005				2006(1)				2007 (1)				2008 (1)
Cereals and oil products		US$	646			US$	622			US$	753			US$	1,014			US$	2,168
Rice			252				176				188				245				439
Wheat			103				77				95				193				381
Soybean			147				155				221				264				581
Pastures			86				109				104				135				327
Vegetables and fruits			214				254				280				481				705
Milk			182				235				249				311				466
Livestock except milk			1,051				1,097				1,238				1,326				1,651
Cattle			892				850				972				991				1,268
Wool			81				59				52				86				69
Forestry			122				138				157				184				271
Total agricultural production		US$	2,215			US$	2,347			US$	2,677			US$	3,316			US$	5,261
Cattle (in thousands of heads slaughtered)			2,233				2,490				2,667				2,255				2,276
Milk (in millions of liters)			1,277				1,352				1,420				1,266				1,426
Wool (in tons)			36,042				44,197				43,234				41,862				37,431

The following tables set forth percentage changes from prior years for agricultural and livestock production for the periods indicated, based on 2005 prices to eliminate distortions introduced by changes in relative prices.

Agricultural and Livestock Production
(% change from previous year, 2005 prices)

		2004				2005				2006(1)				2007(1)				2008(1)
Cereals and oil products			8.9	%			3.2	%			15.4	%			2.9	%			20.3	%
Rice			6.3				3.0				(6.3	)			7.1				(2.2	)
Wheat			62.7				(12.1	)			31.3				14.9				90.8
Soybean			46.2				29.0				25.7				7.5				9.2
Pastures			(22.6	)			37.2				8.5				(5.5	)			(2.1	)
Vegetables and fruits			5.7				7.1				(3.5	)			(3.3	)			(5.9	)
Milk			6.8				9.0				5.1				(10.9	)			12.7
Livestock except milk			15.6				1.1				1.4				(8.4	)			3.7
Cattle			10.0				7.2				(0.4	)			(8.6	)			3.4
Wool			3.0				22.5				1.6				(6.9	)			(10.5	)
Forestry			(4.3	)			4.4				12.9				7.9				8.9
Total agricultural production			9.9	%			3.5	%			5.6	%			(3.8	)%			9.1	%

Mining

The mining sector mainly consists of stone and sand quarries. These products are used primarily in construction. Other contributors to the mining sector include smaller operations for the mining of gold and semi-precious stones, such as agate and amethyst. Mining has remained relatively constant as a percentage of GDP from 2004 through 2008 at around 0.3%. Uruguay has no known oil or natural gas reserves, although exploratory work has been undertaken in the coastal region. At present, several projects for the mining of nickel, copper and diamonds are being developed in Uruguay.

Manufacturing

Manufacturing has always been an important sector of Uruguay’s economy, accounting for 15.5% of GDP in 2008. In 2004, the manufacturing sector grew by 7.6% in real terms, compared to 2003. In 2005, the manufacturing sector grew by 11.6%. The most dynamic segments of the manufacturing sector in 2005 were foodstuffs and chemicals, which grew by 19.1% and 11.8% respectively in real terms, while tobacco was the less dynamic segment, contracting by 10.2% in real terms. In 2006, manufacturing grew by 7.9%, primarily due to an 7.8% increase in foodstuffs and other industries. In 2007, manufacturing grew by 7.0% in real terms compared to 2006, driven by an increase in foodstuffs and chemical production. In 2008, the manufacturing sector grew by 17.3%, increasing the sector’s contribution to GDP. Growth was fueled by pulp and paper activities, resulting from a pulp mill coming on line in mid-November 2007, foodstuffs and oil refined products.

The following tables set forth information regarding goods production for the periods indicated.

Selected Manufacturing Goods Production
(in millions of US$)

		2004				2005				2006(1)				2007(1)				2008(1)
Foodstuffs:
Processed meats		US$	201			US$	252			US$	300			US$	288			US$	394
Dairy products			117				160				169				213				316
Wheat and rice mills			45				55				61				75				123
Baked goods			74				103				124				162				235
Other foodstuffs			222				298				364				454				517
Total foodstuffs			659				868				1,018				1,192				1,585
Beverages			82				127				135				166				247
Tobacco			18				22				22				25				28
Textiles			190				231				229				253				270
Leather goods			45				45				51				63				59
Chemicals			221				311				343				405				526
Oil and refined products			247				239				257				224				376
Machinery			164				195				260				333				425
Other industries			418				547				709				870				1.483
Total		US$	2,043			US$	2,585			US$	3,024			US$	3,530			US$	4,999

Manufacturing Gross Production
(% change from previous year, 2005 prices)

		2004				2005				2006(1)				2007(1)				2008(1)
Foodstuffs:
Processed meats			39.9	%			22.2	%			7.8	%			(12.5	)%			1.9	%
Dairy products			1.2				14.0				3.3				4.9				11.1
Wheat and rice mills			7.4				14.2				0.4				(0.3	)			13.0
Baked goods			(1.7	)			1.2				10.2				9.6				5.0
Total foodstuffs			14.2				19.1				7.8				3.1				7.8
Beverages			10.2				8.0				1.4				11.9				15.1
Tobacco			(12.3	)			(10.2	)			(3.4	)			3.5				(5.2	)
Textiles			(7.8	)			1.9				(2.9	)			5.9				(4.8	)
Leather goods			(15.9	)			11.1				4.9				13.7				(13.7	)
Chemicals			10.9				11.8				5.3				10.9				6.5
Oil and refined products			52.5				3.7				(8.1	)			(13.2	)			30.5
Machinery			(3.5	)			1.7				16.5				12.5				5.2
Total			7.5	%			14.2	%			7.9	%			7.0	%			17.3	%

Electricity, Gas and Water

Energy consumption in Uruguay consists of oil and gas, electricity and wood. Electricity is produced primarily from hydroelectric sources and is provided by Usinas y Transmisiones Eléctricas or UTE, a state-owned entity. Electricity can be imported freely and Uruguay imports electricity from Argentina and Brazil. Uruguay plans to build an electrical transmission line between San Carlos (Uruguay) and Candiota (Brazil), with an intermediate frequency converter in Cerro Largo (Uruguay), with financing expected to be provided by the Structural Funds of the Mercosur and the Banco Nacional de Desenvolvimiento Economico e Social of Brazil or another

Brazilian financial institution. The Uruguayan government expects this line to be operative in two years. The country imports all of its oil and gas supplies from various international sources and has a state-owned oil refining company, ANCAP. Uruguay’s economy is therefore vulnerable to increases in international oil prices. With a view to reduce oil imports, ANCAP has recently invested in biodiesel plants intended to be operative in September 2009. To increase its fuel transportation capacity, ANCAP has also recently invested in vessels. The government has also launched the Uruguay Round 2009 aimed at awarding private sector enterprises with hydrocarbon exploration and exploitation contracts in off shore Uruguayan areas. See "The Economy – Privatizations." Natural gas can be imported freely, and its distribution and transportation have been opened to private investment.

The electricity, gas and water sector’s performance has varied over the past five years, mainly as a result of the electricity sector’s performance, which in turn depends on the type of electricity generated (thermoelectric and/or hydroelectric). In 2007, the electricity, gas and water sector grew 55.3% in real terms driven by a generalized increase in production of all items, which improved its performance compared to 2006. The improved results in the electricity segment 2007 are largely attributable to increased production of hydroelectric energy, sold in the domestic market as well as abroad. In each of 2008 and in 2006, the electricity, gas and water sector decreased as compared to its previous year. This was caused by an increase in thermoelectric generation, due to insufficient hydroelectric generation as a result of droughts.

Construction

In 2004, the construction sector recorded a growth for the first time since 1999, expanding by 9.5% in real terms compared to 2003. This increase was largely due to a greater private sector activity, including public works projects undertaken by private companies. In 2005, the construction sector grew at an annual rate of 22.2%, primarily driven by the construction of a paper pulp mill in Fray Bentos and commercial real estate in Maldonado. Growth continued through 2006, 2007 and 2008, at annual rates of 10.1%, 5.5% and 9.0%, respectively, fueled by public and private sector investment.

Commerce, Restaurants and Hotels

The commerce, restaurants and hotels sector, which includes retail business and captures a portion of Uruguay’s gross tourism receipts, rebounded in 2004 after the 2002 economic crisis, which continued to have effects into 2003, growing by 21.4% in real terms compared to the previous year. This growth primarily reflects the improved conditions of the Argentine economy with the resulting increase in Argentine tourist arrivals in Uruguay, as well as increased tourist inflows from other regions, including Europe, and the recovery of domestic demand.

During 2005, this sector grew at an annual rate of 6.5%, mainly reflecting increased expenditures by tourists coming from outside the region. In 2006, the commerce, restaurants and hotels sector grew by 6.0% in real terms, primarily due to the recovery of the commercial activities. In 2007, this sector expanded by 12.7%, driven by an increase in the average expenditure by tourist as well as by demand for these services by local households. In 2008, the sector grew by 10.5% in real terms, driven primarily by an increase in wholesale and retail trade

services (mainly imported goods) and an expansion of the restaurants and hotels activities. The commerce, restaurants and hotels sector accounted for approximately 14.1% of GDP in 2008.

Commerce, on its own, accounts for 10.9% of the sector’s 14.1% of GDP. In 2004, for the first time since 1999, the commerce sector showed signs of recovery growing by 9.7% in real terms compared to 2003. In 2005, the commerce sector grew by 9.3% in real terms, compared to 2004, and in 2006 it grew by 5.6% compared to 2005, increasing the sector’s contribution to GDP to 10.8%. In 2007, the commerce sector grew by 13.7%, primarily due to a 12.5% increase in trade services. In 2008, the commerce sector grew by 10.9%, driven by wholesale sales, which increased 11.8%, compared to an increase of 7.3% of retail sales, in each case compared to 2007.

Transportation, Storage and Communications

The transportation, storage and communications sector grew in real terms by 13.3% in 2004 and 14.4% in 2005, mainly as a result of communications activities. In 2006 and 2007 this sector grew by 8.8% and 12.2% respectively, due to both an increase in transportation (mainly of passengers) as well as communications activities. In 2008, the sector grew at a rate of 27.1%, primarily due to the increase in the demand for mobile phone services.

Real Estate, Business, Financial and Insurance Services

The real estate and business sector and the financial and insurance services sector grew 17.4% in real terms during the period 2004 — 2008. This growth was driven primarily by the financial and insurance services sector and by the business services segment, as a result of a trend in the manufacturing sector to sub-contract administrative, maintenance and cleaning services. Real estate also grew during this period driven by tourism rentals and purchases.

Uruguay established a strong reputation as a regional financial center in the early 1980’s, primarily due to its free foreign exchange and capital markets, which were liberalized in 1974, its banking and tax reporting secrecy legislation, and its low tax rates. During periods of economic turmoil in the region, such as 1995, 1998 and 2001, Uruguay’s financial sector saw deposits from foreign sources increase as depositors sought a safer haven for their savings.

Beginning in 2002, Uruguay’s financial sector was significantly affected by Argentina’s crisis. Large withdrawals of deposits during 2002 significantly exceeded the liquidity of four private banks (including the two largest private banks which were branches of Argentine based banks), which ceased to operate and entered a liquidation stage. Through multilateral financial support from the IMF, the World Bank and the IADB, the government was able to provide the necessary liquidity to government-owned banks and to the three largest private banks to honor sight deposits existing as of July 30, 2002, thereby mitigating to some extent the impact of the crisis of the banking sector on the economy as a whole.

The financial and insurance services sector’s contribution to GDP has declined since 2002 as other sectors of the economy have grown at a faster pace in relative terms. The decline of the contribution of the financial and insurance services sector to the GDP is attributable to a change in the methodology of the calculations.

Role of the State in the Economy

The government continues to participate in the economy through state ownership of certain companies. The government, however, has emphasized its willingness to prepare state-owned companies for competition, as it takes measures to reduce further barriers to trade and to deregulate markets. It has also stated its intention to draw clearer distinctions between the role of the state as a regulator and as a shareholder or owner of commercial enterprises. In that respect, a number of regulatory entities were created to monitor the telecommunications, water, electricity, railway freight, oil and sanitation sectors. Since 1999, legislation has been passed to allow the private sector to participate in the provision of telephone (other than fixed line) and railroad services, in the administration of maritime ports, in the importation and distribution of natural gas and in certain other areas of the economy previously restricted to the public sector.

At present, the government owns:

	1.		the local telecommunications company (ANTEL);
	2.		the oil refinery company (ANCAP);
	3.		the electric power utility (UTE);
	4.		the water and sewage authority, Obras Sanitarias del Estado (OSE);
	5.		Administración Nacional de Puertos (ANP), which operates most of Uruguay’s ports;
	6.		Administración de Ferrocarriles del Estado (AFE), which operates railway freight services;
	7.		Banco de la República and Banco Hipotecario (state-owned financial institutions);
	8.		Banco de Seguros del Estado (an insurance company); and
	9.		Administración Nacional de Correos, a postal services company that competes with several private sector companies.

UTE provides electric power and services to Uruguay. With the exception of Salto Grande, a binational hydroelectric facility jointly owned by the Uruguayan and Argentine governments, UTE owns and operates all of the hydroelectric generation plants in Uruguay. It also owns and operates several thermoelectric and gas facilities and all of Uruguay’s electricity transmission assets. UTE currently provides all of the domestic electricity services in Uruguay, although under recent legislative measures and presidential decrees the private sector may engage in generation activities and industrial consumers should soon be able to purchase energy directly from foreign sources taking advantage of interconnection arrangements with Brazil and Argentina.

ANTEL has been the traditional provider of domestic and international long-distance telephone services in Uruguay. The company also provides basic telephone service in localities outside major urban areas, and has developed rural telephone services.

OSE is Uruguay’s largest water company, providing water and sanitation services to all of the country and sewage services outside Montevideo.

ANCAP is the national oil refinery, responsible for processing the crude oil imported by Uruguay and marketing refined products.

Uruguay imports all the natural gas it consumes. Privately owned companies run the gas transportation and distribution business within a regulatory framework based on the granting of concessions contracts and decrees of the government.

For a description of the functions and operations of Banco de la República and of Banco Hipotecario, see "The Banking Sector."

During the last eight years, non-financial state-owned enterprises have in the aggregate recorded operating profits. The combined surpluses of non-financial public-sector enterprises as a percentage of GDP ranged from 0.4% in 1999 to 1.5% in 2004, compared to a deficit of 0.3% in 1994. In 2005, the combined surplus of the non-financial public-sector enterprises declined to 0.9% of GDP mainly due to the impact of the increase in the price of crude oil on ANCAP’s operations and the negative effect of the 2005 drought on UTE’s balance sheet. In 2006, the non-financial public-sector enterprises in the aggregate generated limited revenues for the government, as their results were adversely affected by the drought and the increased prices of oil and the government’s decision not to fully pass on the cost to retail prices. During 2007 the combined surplus of the non-financial public sector enterprises represented a 1.4% of the GDP. It is expected that the non-financial public sector enterprises in 2008 will record a combined operating surplus although smaller as a percentage of GDP than in 2007. While most non-financial public sector enterprises are expected to record operating surpluses in 2008, the UTE’s operations were adversely affected by the continued drought and high oil prices, which in turn adversely affected UTE’s results since the increased costs of generating energy were not passed on fully to the public.

At this time the government has no plans to privatize any public sector enterprises.

The following table sets forth selected financial data for the principal state-owned enterprises as of the dates and for the periods indicated.

Principal Public Sector Enterprises
(in millions of US$)

														Percentage of
		Total Assets				Total Liabilities				Net Profits				State Ownership
ANCAP(1)			1,244				539				33				100	%
ANP(1)			460				41				(1	)			100	%
AFE(1)			188				14				(20	)			100	%
ANTEL(1)			1,131				175				88				100	%
OSE(1)			1,029				164				39				100	%
UTE(1)			3,512				508				198				100	%

Employment, Labor and Wages

Employment

The employment rate rebounded to 50.8% in 2004, recovering from the 2002 economic crisis. It rose to 51.4% in 2005, 53.9% in 2006, 56.7% in 2007, reaching 57.7% in 2008. Unemployment declined steadily from 13.1% in 2004, reaching 7.9% in 2008. The continued recovery of the economic activity in Uruguay since 2004 explains the continued decrease in the nationwide unemployment rate to date. Manufacturing, commerce, restaurants and hotels, construction services and other services were the principal sectors that contributed to the recovery of employment during the period 2004–2008.

The following table sets forth certain information regarding employment and labor in Uruguay as of the dates indicated.

Employment and Labor
(% by population)

		December 31,
		2004				2005				2006				2007				2008
Nationwide (urban):
Participation rate(1)(2)			58.5	%			58.5	%			60.9	%			62.7	%			62.6	%
Employment rate(3)			50.8	%			51.4	%			53.9	%			56.7	%			57.7	%
Unemployment rate(4)			13.1	%			12.2	%			11.4	%			9.6	%			7.9	%
Montevideo:
Participation rate(1)(2)			59.8	%			59.1	%			61.6	%			64.0	%			63.9	%
Employment rate(3)			52.0	%			52.1	%			55.1	%			58.4	%			59.3	%
Unemployment rate(4)			12.9	%			11.8	%			10.6	%			8.6	%			7.2	%

The composition of employment by activities in Uruguay generally reflects the composition by activities of the GDP. Unionized labor in Uruguay is concentrated primarily in the public sector and the manufacturing, construction and financial services sectors of the economy.

The following table sets forth information regarding the percentage of the labor force by sector of the economy for the periods indicated.

Labor force⁽¹⁾
(% by sector)

		2004				2005				2006				2007				2008
Agriculture, livestock, fishing and mining			5.1	%			4.6	%			4.8	%			5.2	%			5.2	%
Manufacturing, electricity, gas and water, and construction services			21.4	%			21.7	%			22.1	%			22.5	%			22.2	%
Services(2)			73.5	%			73.7	%			73.1	%			72.3	%			72.6	%
Total			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

Since Uruguay’s return to democratic rule, unions have declined in power and importance. Nonetheless, strikes and other actions by unions have occurred on occasion, normally in the form of general, one-day strikes. In cases of strikes which threaten to have a material adverse effect on private or public sector functions, the government can declare that the labor functions which are the subject of the strike provide "essential services" to the country, thereby making the strike illegal. In various instances during the past ten years, the government has threatened to disband or in fact disbanded strikes on the basis that the services provided were essential to the country. During 2007 and 2008, labor unions increased their demands for improvements in salaries and working conditions. However according to "Indice de conflictividad laboral" (labor conflict index) published by Universidad Católica del Uruguay, conflicts have decreased 21% in 2007 in comparison to 2002.

Wages

The following table sets forth information about wages for the periods indicated.

Average Real Wages
(annual average % change from previous year,
unless otherwise indicated)

		2004				2005				2006				2007				2008
Average real wages			(0.1	%)			4.6	%			4.4	%			4.8	%			3.5	%
Public sector			2.6				5.7				3.3				5.2				3.6
Private sector			(1.5	)			4.0				5.0				4.5				3.5

Public sector wages increased nominally by 13.4% from December 31, 2003 to December 31, 2004 and the average public sector wage level for 2004 increased by 2.6% in real terms compared to 2003. Private sector wages, however, lost ground in real terms in 2004. The increase in real wages in the private sector that started during the third quarter of 2004 continued in 2005 and 2006. During 2006, real wages increased by 4.4% compared with 2005. The real wage increase in the public sector during 2006 was 3.3%, whereas the real wage increase for the private sector was 5.0%. After 2006, increases in real wages were discussed within the context of a collective bargaining mechanism involving the principal sectors of the economy, with government participation in the negotiations. During 2007, the increase in real wages in the public sector was 5.2% and real wage increases for the private sector was 4.5%. In 2008, the average increase in public sector wages was 3.6% and 3.5% in private sector wages. Under the collective bargaining rules, which were not followed during the 1990s, each sector of the economy negotiates wage increases twice a year.

Poverty and Income Distribution

Poverty levels in Uruguay have decreased sharply in recent years due to the economic recovery. According to the National Statistics Institute, the percentage of Uruguayan urban households with an income below the minimum amount needed to purchase essential food and non-food requirements was 21.7% in the first semester of 2008 compared with 30.7% in 2003.

While Uruguay has disparities in the distribution of wealth and income, which increased in recent years, such disparities are of a lesser magnitude than those of other Latin American nations such as Brazil, Colombia, Chile, Argentina, Mexico and Venezuela. As set forth in the table below, in 2007, 34.8% of the national income in Uruguay was concentrated in the hands of the top 10.0% of the economically active population as compared to 47.2% of the national income for Brazil, 37.0% for Costa Rica, 41.9% for Chile, 40.8% for Argentina and 39.4% for Mexico (the percentage of the last three countries are for the year 2006).

The following table outlines the data on income distribution for the periods indicated.

Evolution of Income Distribution of Urban Households
Population of Uruguay
(% of national income)

Income Group		1999				2002				2004				2005				2007
Lowest 40%			14.5	%			13.9	%			13.6	%			13.9	%			13.7	%
Next 30%			23.9				23.2				22.9				23.3				23.0
Next 20%			28.1				28.3				27.9				28.1				28.5
Highest 10%			33.5				34.6				35.6				34.7				34.8
Total			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

The government has sought to address problems relating to poverty through health care accessibility and other measures. See "The Economy – The Economic Policies of the Vazquez Administration." Uruguay has a public health system that gives access to services on a sliding-scale basis, where fees are based on a citizen’s ability to pay, and guarantees medical care for workers. The government also maintains funds for the extraordinary medical expenses of the needy.

FOREIGN MERCHANDISE TRADE

Uruguay’s exports primarily comprise commodities (farm products and paper pulp).

Merchandise exports in 2005 increased by 18.5% (measured in U.S. dollars) compared to 2004, largely as a result of an increase in exported quantities of primary products. In 2006, merchandise exports increased by 17.5% (measured in U.S. dollars) compared to 2005, largely as a result of continued increases in exports of meat and other traditional products. In 2007, merchandise exports increased by 13.9% (measured in U.S. dollars) compared to 2006, driven by the increase in exports of chemical and meat products. In 2008, merchandise exports increased by 37.9% (measured in U.S. dollars) compared to 2007, mainly as a result of exports of paper pulp, processed meat and agricultural products.

Merchandise imports in 2005 increased by 24.4% (measured in U.S. dollars) compared with 2004. A significant portion of the increase in imports was attributable to higher international prices for oil, of which Uruguay is an importer. The increase of merchandise imports in 2005 was also fueled by imports of capital goods. In 2006, merchandise imports increased by 23.9% (measured in U.S. dollars) compared to 2005, primarily due to the significant increase in imports of intermediate goods. In 2007, merchandise imports grew 17.1% (measured in U.S. dollars) compared to 2006, driven by a 35.5% increase in imports of capital goods.

A significant portion of Uruguay’s merchandise trade has involved its neighbors and principal trading partners, Argentina and Brazil. With the initial consolidation of the Mercosur in the 1990’s, Brazil and Argentina became Uruguay’s principal trading partners. By 1998, those two countries together accounted for more than 50% of Uruguay’s exports. This regional concentration has subjected Uruguay’s economy to the volatility that has characterized the economies of Uruguay’s neighbors. To mitigate the adverse impact on Uruguay’s foreign trade resulting from imbalances that develop within Mercosur, the government has actively promoted Uruguayan exports in markets outside Mercosur within the framework of regional as well as bilateral agreements. The increased competitiveness of Uruguayan exports since 2002 initially resulted in exports to the region becoming less significant as a percentage of Uruguay’s total exports. In addition to its bilateral free trade agreement with Mexico, which became effective on July 15, 2004, on June 11, 2004 Uruguay and Iran signed a framework agreement to promote bilateral trade. Uruguay will also seek to take advantage of opportunities to increase its exports that may arise from the agreements reached by Mercosur with each of Israel and Venezuela in 2005.

Mercosur member states remain the main destination of Uruguay’s exports and source of its imports. Exports to Argentina and Brazil accounted for 23.1% of total exports in 2004, 20.1% of total exports in 2005, 20.8% of total exports in 2006, 22.0% of total exports in 2007 and 22.3% of total exports in 2008. Even more significantly, Argentina and Brazil accounted for 43.9% of total imports in 2004, 41.6% of total imports in 2005, 45.6% of total imports in 2006, 45.7% of total imports in 2007 and 43.3% of total imports in 2008. In 2008, exports to Brazil included wood pulp, malt, plastics and cereals, exports to Argentina were concentrated in oil refined products, plastics and autoparts, and Venezuela was the destination primarily of milk and diary products.

In 2004, Europe accounted for 21.2% of Uruguay’s merchandise exports and 23.7% of its merchandise imports, compared to 24.7% and 8.8% of exports and imports in 2008, respectively. Merchandise exports to Asia have fluctuated slightly remaining below 10.0% over the past five years, accounting for 7.7% of Uruguay’s total merchandise exports in 2004 and 6.5% of total merchandise exports in 2008.

The United States is another of Uruguay’s major trading partners. While Uruguay’s merchandise imports from the United States have fluctuated since 2002 (as a percentage of total imports) first decreasing to 6.7% in 2005 and recovering to 7.3% in 2007, the United States attracted an increasing percentage of Uruguay’s total merchandise exports after the 2002 crisis reaching a historical record of 21.1% of total exports in 2005, and accounting for 10.2% of total exports in 2007. Exports to United States declined significantly in 2008, accounting for only 3.2% of total exports due to a decline in the demand by the United States mainly of processed meats.

Uruguay has diversified and increased substantially its merchandise exports over time. After peaking at US$2.8 billion in 1998, merchandise exports decreased to US$1.9 billion in 2002, primarily due to the impact of the uncertainties affecting the Brazilian economy and the recession affecting Argentina. Merchandise exports began to recover in 2003, increasing to US$2.2 billion in 2003, primarily due to the improved competitiveness created by the real devaluation of the peso and further increased to US$2.9 billion in 2004, mainly as a result of increased demand for Uruguayan exports and elevated prices for several of Uruguay’s commodity exports. The real appreciation of the peso during 2005 did not adversely impact exports, which reached US$3.6 billion, mainly due to the growth in export sales of meat, rice and diary products. In 2006, exports totaled US$4.2 billion, due to an increase in exports of traditional products and in 2007, merchandise exports amounted US$4.5 billion driven by a significant increase in non traditional exports. In 2008, merchandise exports totaled US$6.7 billion, increasing by 37.9% compared to 2007.

Merchandise exports have historically been concentrated on agriculturally based traditional and manufactured products, such as wool, meat, rice and textiles. Uruguay was first declared free of foot and mouth disease in 1995. This measure granted Uruguay access to broader markets and allowed it to obtain higher prices for its beef. However, an outbreak of foot and mouth disease in Uruguay in 2000 severely affected meat exports during the last quarter of 2000. The government responded by implementing a vaccination program aimed at preventing the spread of the disease. Exports of Uruguayan beef to Uruguay’s traditional export markets, including Brazil, Chile, Israel and the European Union, which were closed following the outbreak of foot and mouth disease in 2000 and 2001, resumed during the last quarter of 2001. By late 2002, Canada, Chile and certain other countries had also recognized Uruguay as free from foot and mouth disease and, in 2003, beef exports regained access to the United States market as well. Exports of Uruguayan beef (in U.S. dollars) increased by 66.7% in 2004 compared to 2003, by 23% in 2005 compared to 2004, and by 25.4% in 2006 compared to 2005. However, beef exports decreased by 0.3% in 2007 compared to 2006 but increased by 47.0% in 2008 compared to 2007. Since 2008, paper pulp accounts for 8.0% of Uruguay’s exports.

Imports have increased over time and become more diverse due to a combination of factors, including increased production and economic activity and the reduction of tariff and non-tariff import barriers. In 2004, driven primarily by improved general economic conditions and the recovery of domestic demand, total imports increased by 42.3% (US$3,119 million), of

which 71.4% represented intermediate goods, 18.4% consumer goods and 10.3% capital goods. In 2005, total imports increased by 24.4% and consisted of consumer goods (20.1%), intermediate goods (68.2%) and capital goods (11.7%). In 2006, total imports increased by 23.9%, of which 20.1% represented consumer goods, 68.8% intermediate goods and 11.1% capital goods. This trend continued in 2007 with an increase of 17.1%, of which 21.3% represented consumer goods, 65.9% intermediate goods and 12.8% capital goods. In 2008, total imports increased by 58.7%, of which 17.9% represented consumer goods, 66.8% intermediate goods and 15.3% capital goods.

The following tables set forth information on exports and imports for the periods indicated.

Merchandise Trade
(in millions of US$ and % of total exports/imports)

		2004								2005								2006(1)								2007(1)								2008(1)
EXPORTS (FOB)
Agricultural products		US$	219				7.1	%		US$	225				6.2	%		US$	247				5.7	%		US$	376				7.7	%		US$	599				8.9	%
Processed meats			738				24.1	%			907				25.0	%			1,138				26.7	%			1,021				21.0	%			1,501				22.4	%
Dairy products			175				5.7	%			246				6.7	%			257				6.0	%			337				6.9	%			432				6.4	%
Wheat and rice mills			165				5.3	%			204				5.6	%			224				5.2	%			287				5.9	%			464				6.9	%
Other foodstuffs			226				7.3	%			239				6.5	%			319				7.4	%			423				8.7	%			463				6.9	%
Textiles			178				5.8	%			182				5.0	%			182				4.2	%			203				4.1	%			189				2.8	%
Leather goods			235				7.6	%			243				6.7	%			296				6.9	%			298				6.1	%			250				3.7	%
Paper pulp			50				1.6	%			53				1.4	%			54				1.2	%			51				1.0	%			565				8.4	%
Chemicals			166				5.4	%			196				5.4	%			224				5.2	%			290				5.9	%			393				5.8	%
Oil and refined products			128				4.1	%			148				4.0	%			135				3.1	%			124				2.5	%			184				2.7	%
Plastic products			65				2.1	%			87				2.3	%			107				2.5	%			127				2.6	%			152				2.2	%
Motor vehicles and parts			56				1.8	%			68				1.8	%			111				2.6	%			124				2.5	%			165				2.4	%
Other			660				21.5	%			827				22.8	%			965				22.6	%			1,195				24.6	%			1,343				20.0	%
Total exports		US$	3,060				100.0	%		US$	3,626				100.0	%		US$	4,260				100.0	%		US$	4,855				100.0	%		US$	6,699				100.0	%
IMPORTS (CIF)
Consumer goods		US$	573				18.4	%		US$	781				20.1	%		US$	966				20.1	%		US$	1,197				21.3	%		US$	1,598				17.9	%
Intermediate goods			2,225				71.4	%			2,645				68.2	%			3,308				68.8	%			3,710				65.9	%			5,971				66.8	%
Capital goods			320				10.3	%			453				11.7	%			532				11.1	%			721				12.8	%			1,364				15.3	%
Total imports		US$	3,119				100.0	%		US$	3,879				100.0	%		US$	4,806				100.0	%		US$	5,628				100.0	%		US$	8,933				100.0	%
Merchandise trade balance:		US$	(181	)						US$	(457	)						US$	(817	)						US$	(1,113	)						US$	(1,984	)