Uruguay feeling Argentine woes

The stately Carrasco Hotel-Casino dominates Montevideo's long riverfront esplanade. Until recently, the ornate hotel remained a showpiece of South America's last major government-run economy.

Since its inauguration in 1921, the 118-room French-style building was the property of the city of Montevideo, Uruguay's capital. Everyone from the tuxedoed waiters to roulette attendants was a municipal worker.

Though the city-run casino is still in business, the hotel is closed. Next year, a private consortium will reopen the Carrasco as a Marriott hotel, helped by $18 million in government tax breaks.

This move toward privatization shows how times are changing here, in large part because of the financial crisis in neighboring Argentina, which is being felt across the increasingly interlinked region. From trade to tourism, Brazil, Paraguay, and Chile have felt the impact of the Argentine collapse.

Brazil has started to stagger under its tremendous debt load. In addition to Argentina's chaos, uncertainty about the outcome of October presidential elections is scaring investors as foreign capital inflows are waning. Exports to Argentina have shrunk dramatically. This month, Brazil's currency stumbled to a six-month low against the dollar.

Paraguay has lost the hordes of Argentine shoppers that came to load up on cheap, untaxed consumer goods.

Shriveling Argentine business has hurt important Chilean companies like the Falabella department store chain, one of several to expand across the Andes in recent years.

But Argentina's problems are being felt most acutely in Uruguay, which was already laboring under a four-year recession. Argentine tourists no longer flock to Uruguay's beach resorts and casinos. And their expatriate capital has drained away from Montevideo's famously secretive banks.

Last month, Uruguay's President Jorge Batlle announced unpopular new taxes in an attempt to shore up the country's finances. On Monday, he came under fire for calling Argentine leaders "a bunch of thieves," referring to alleged corruption that has contributed to the economic crisis there. He will be flying to Buenos Aires mend the two countries' typically good relations.

For now, Uruguay, the small beef- exporting nation wedged between Brazil and Argentina, stands as a throwback to the time when phone companies, gas stations, and even casinos in Latin America were state-run. And while other countries' belt-tightening reforms have ravaged social safety nets, Uruguay's welfare system has remained generous.

But Uruguayans are being forced to reconsider the costs of their government. Many fear their nation also may stand on the edge of economic disaster.

Hanging in the balance is the identity of Uruguay's small society, characterized by European-style benefits. One in six Uruguayans works in the public sector.

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