Uruguay’s Next Big Challenge: Social Security Reform

President Lacalle Pou hoped that his referendum victory would offer him more time, as well as a stronger mandate, to pursue a series of reforms, including on social security, that are key to reducing Uruguay's high public spending.


Image: The Uruguayan Senate voting on a measure in December, 2021. Source: Prensa Latina.

The Uruguayan social security system currently covers nearly 90 percent of Uruguay’s senior citizens, making it one of Latin America’s most robust. It is based on a mixed regime characterized by a public-administrated intergenerational solidarity system and a private-led mandatory individual saving scheme. However World Bank analysts argue that the system needs an urgent reform, as right now it is financially unsustainable both in the medium and long term. In 2018, its total cost represented 11 percent of Uruguay’s GDP. Without the constant direct financial assistance from the Uruguayan government the system cannot function, as it does not generates enough funds to transfer to its beneficiaries. This financial burden, which is only expected to grow, as the country’s birth rate remains low and the life expectancy increases, poses a significant threat to Uruguay’s welfare state stability. 

Indeed, in 2017 former Uruguayan President Tabaré Vázquez warned that if the country did not pursue a social security reform, the entire system would eventually break down. In Vázquez’s estimation, “sometimes making reforms is painful, but there is no other medicine than to make them,” However, his center-left government ended up doing little to promulgate a reform.

Although they are necessary, social security reforms are the type of reforms that no government wants to make. In France, President Emmanuel Macron is likely to try once again to reform his country’s crumbling social security system following his recent election. His first attempt in late 2019 was met with furious protests and France’s longest strike in over 50 years. Similarly, in other advanced democracies like Japan, where the birth rate is notably low and the population life span has increased more than ever before, politicians have been struggling for years now over how to keep the system financially solvent amidst rising public debt. 

In Latin America, Uruguay is not alone. A growing number of countries now realize that they cannot delay their retirement system reforms any longer. Analysts from the Inter-American Development Bank suggest that governments in the region are facing serious challenges to increase the number of people covered, as well as to provide sufficient resources to the beneficiaries. Although the average Latin American is younger than the average European, the aging trend remains similar. By 2050, the Latin American population aged 65 or older is projected to grow from 8 percent to 17.5 percent.

In recent years, some countries in the region started to discuss and implement reforms aimed to restructure their social security systems. In 2017, former Argentine President Mauricio Macri’s center-right coalition passed a controversial reform amidst fierce street protests and a surprising level of mobilization from the middle and upper classes. The reform included a new formula to calculate pensions, and it increased the optional retirement age from 65 to 70 years old for men and 60 to 63 years old for women. In 2018, in Nicaragua, mass protests erupted after the Ortega regime attempted to overhaul the social security system by decree. Although they abandoned the reform, President Daniel Ortega and his wife, Vice President Rosario Murillo, responded to the crisis by cracking down on opponents, committing gross human rights violations, and dismantling what was left of Nicaragua’s democracy. In Chile, following the 2019 social protests, the demand to change the country’s private pension system became one of the protestors’ main petitions. 

Like newly inaugurated President Gabriel Boric, who promised Chileans that he will reform the social security system, Uruguayan President Luis Lacalle Pou also pledged during the 2019 presidential campaign that social security reform would be one of his top priorities. Together with his center-right coalition members from the Partido Colorado, Cabildo Abierto, Partido Independiente, and Partido de la Gente, he signed a document called “Compromiso por el país” (Commitment for the Country) to start a process to reform the social security system. According to the document, the next system ought to be “modern and financially sound” and based on a “solid technical consistency and broad political support.”

In the first two years of his presidency, following 15 years of center-left governance under the Frente Amplio, Lacalle Pou faced the unprecedented sanitary, economic, and social repercussions of the COVID-19 pandemic. Although the response received support from the majority of Uruguayans, as well as international recognition for the quick and effective vaccination campaign, Lacalle Pou had to postpone much of his agenda. Moreover, in July 2021, the Frente Amplio, the main opposition party, and the PIT-CNT, Uruguay’s largest trade union organization, announced that they reached the 700,000 signatures needed to call for a  referendum to partially repeal Lacalle Pou’s Urgent Consideration Law (LUC, for its initial in Spanish)—an omnibus bill passed in early 2020. In late March 2022, after a heated referendum campaign that kept all political actors occupied for months, Lacalle Pou and his coalition were able to avoid the partial repeal by a thin margin of votes.

President Lacalle Pou hoped that his referendum victory would offer him more time, as well as a stronger mandate, to pursue a series of reforms, including on social security, that are key to reducing Uruguay’s high public spending. However, the economic shockwaves of the Russian invasion of Ukraine has posed a threat to Uruguay’s economic recovery from the pandemic. Rising food and oil prices have lowered Uruguayan consumers’ expectations. Fears that inflation could once again drive down real wages has prompted Lacalle Pou’s economic team to announce a series of measures such as tax exemptions on certain basic products and an increase in public sector salaries and pensions.

In this economic and political context, it is worth asking if President Lacalle Pou and his coalition will eventually keep their promise and pursue a social security reform. In early 2020, his administration made important progress by setting up a commission of experts from across the political spectrum to make a diagnosis and propose measures to reform the system. 

The commission report was straightforward: Uruguay needs to reform its social security system. Uruguay’s per capita social security spending is similar to that of Spain and above that of other wealthy countries such as Denmark or Norway—all three of them with populations older than the Uruguayan population. In 2018, 50.8 percent of Uruguay’s social public expenditure corresponded to social security, far above health care (24.2 percent) and education (18.4 percent). According to the commission of experts, the Uruguayan government must reform social security to guarantee other social programs, which are equally fundamental to Uruguayans’ wellbeing and prosperity. Hence they proposed to create a new formula to calculate pensions and increase the minimum retirement age from 60 to 65 years old (On average, the current retirement age is between 62 and 63 years old.)

Now, the decision whether to send a reform bill to Congress rests with President Lacalle Pou. The Frente Amplio and the PIT-CNT have already announced that they oppose raising the retirement age. Although Lacalle Pou has the votes needed in both chambers to pass a reform, the window of opportunity is closing faster than previously thought. The current economic uncertainty triggered by the war in Ukraine, together with the upcoming election season, could make Lacalle Pou’s coalition partners and even his own Partido Nacional prefer to avoid sensitive issues. Recent polls suggest that 69 percent of Uruguayans opposed the rising retirement age and think that it should be kept at 60 years old. Although the content of the reform remains uncertain, what is clear is that political actors need to clearly communicate and convince the population about the importance of reforms. As recent episodes suggest, a social security reform is a sensitive issue and will require broad popular support to head off social unrest.

Alejandro Trenchi is an intern at Global Americans. He received a master’s in political science from Leiden University. Follow Alejandro on Twitter: @trenchiale

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