A VISITOR’S LASTING memory of Montevideo, the capital of Uruguay, may be that it’s not very memorable at all. Unlike the fashionable beaches of Rio de Janeiro or the splendour of Buenos Aires’s poshest districts, few parts of the city stand out. The centre (pictured) is pleasant but many buildings look in need of a lick of paint. The most famous feature is the Rambla, a coastal avenue which is possibly the longest continuous pavement in the world.

Montevideo’s dullness, however, is a symptom of Uruguay’s quiet success. The country boasts Latin America’s largest middle class, comprising almost two-thirds of the population, compared with an average of around a third elsewhere. It has the region’s highest income per capita, some of its lowest levels of inequality, and has more or less eliminated extreme poverty. In 2019 just 0.1% of the population earned less than $1.90 a day, according to the World Bank. Its capital may lack glamour, but it is short of corruption, too.

And whereas other Latin American governments floundered during the pandemic, Uruguay’s took a sensible middle course. Luis Lacalle Pou, the centre-right president, focused on vaccinations and testing rather than long lockdowns. Fully 70% of the country of 3.5m received two jabs in six months. It was the first country in the region to reopen schools. According to official statistics, Uruguay has suffered just under 7,000 deaths from covid-19. What can such an unassuming place teach its worse-run neighbours?

Uruguay has some structural advantages. Spanish colonialists called it the “land of no profit”, as it had neither precious metals nor cheap indigenous labour. These seeming flaws actually turned out to be strengths, however. A lack of easy rents helped ward off oligarchs. A fairly homogenous population prevented the stark racial inequality of places like Brazil.

Uruguay is also strikingly secular. In 2014 fully 37% of its citizens were agnostic or atheist, compared with 20% in the region as a whole, according to the Pew Research Centre. In the same survey it was the only country in Latin America where a majority said religious leaders should have no influence at all in politics. Partly as a result, divorce was legalised in 1907, a full 97 years before Chile made the same move. Same-sex marriage, abortion and the sale of cannabis are all legal.

But Uruguay’s good fortune is not simply the result of historical circumstance. The constitution weakens the power of the executive and forces whomever is in power to negotiate with opposition parties. Uruguay has an unusual administrative model in which the boards of public entities, from the water company to the state bank, include members of the opposition as well as the ruling party.

After an economic crisis in Argentina in the early 2000s, Uruguay began to decouple its economy from that of its sclerotic neighbour. Between 2001 and 2021 the share of exports going to Brazil and Argentina fell from 37% to 24%. The economy is still dependent on agricultural exports and tourism, but successive governments have tried to boost tech, too. Uruguay is now one of the biggest exporters of software in the world, relative to its population. In 2006 it pioneered a policy that gave each student a laptop. That made remote learning easier during covid-19.

The country is business friendly. It boasts 12 free-trade zones where many taxes are suspended. Partly as a result, the startup scene is booming. Last year dLocal, a digital-payments system and the country’s first unicorn (a private firm worth $1bn or more) saw its value rise to nearly $10bn when it listed in New York. Argentine entrepreneurs, fed up with populist politics, have flocked to Uruguay. They include Marcos Galperin, the co-founder of MercadoLibre, an e-commerce firm which briefly became the highest-valued company in Latin America during the pandemic. Mr Lacalle Pou is seeking free-trade agreements with China and Turkey.

What makes all of these successes possible is remarkably stable politics. Populist rule throughout the region often leads to drastic policy swings when governments change hands. In contrast, Mr Lacalle Pou’s centre-right coalition, which came to power in 2020, has not rolled back policies which were introduced by the previous centre-left government, such as boosting spending on education and health. It does want to cut public expenditure by $1bn, but plans to do so by reducing inefficiencies and squeezing the government payroll.

Stable politics are accompanied by an enduring faith in democracy. Three-quarters of Uruguayans tell pollsters that their votes are always counted fairly, compared with 18% of respondents in Colombia. Uruguay is the only country in the region where a majority do not believe that rich people buy political influence.

All is not rosy, of course. Powerful trade unions can be a hindrance to reform. Roughly 30% of workers are union members, compared with a regional average of 16% (and just 10% in the United States). Almost all workers, in both the public and private sectors, are covered by collective-bargaining deals. Teachers, in particular, resist change. Most of the increase in the education budget over the past two decades went on wages. Promotions tend to be based on seniority. “Some of my teachers are just there because they’re old, and they are the worst teachers ever,” groans Camilla, a 13-year-old. According to CAF, a Latin American development bank, in 2018 a higher proportion of pupils dropped out of secondary school than anywhere else in the Americas except Guatemala and Honduras. Around 40% complete high school.

Inefficient state monopolies, meanwhile, raise costs for businesses. The telecoms union is fighting to repeal a law that allows customers to keep their mobile phone number if they switch providers, as that would spur competition. Such restrictions hinder foreign investment, which is lower as a proportion of GDP than in Brazil, Chile or Colombia.

Mr Lacalle Pou’s popularity, boosted by his response to the pandemic, could soon be dented. On March 27th the government will hold a referendum on a package of laws it rammed through Congress under an “urgent consideration” law in 2020. The 476 measures cover everything from fighting crime to sanitising slaughterhouses. The government, which was new at the time, had been keen to press ahead with its legislative agenda as quickly as possible, even by unorthodox methods. Unions and the opposition pushed for the referendum. They say the means and haste by which the package was adopted damage democracy, and want to repeal 135 of the laws.

Polls suggest a closely divided electorate. But trust in institutions remains. There is little hint of populism about the opposition’s complaints. The fuss has not yet led to any large street protests, common in the rest of Latin America. “It would be hard to have a Donald Trump here,” says Adolfo Garcé, a political scientist. ■