Microeconomic adjustments in Uruguay during 1973-1981: The interplay of real and financial shocks

This paper uses the financial statements of industrial firms to develop an integrated firm's eye view of the changes in the Uruguayan economy during 1973-1981. In the first of three subperiods, 1973-1975, real financial costs were very negative and tended to offset low returns on operating assets. During 1976-1978, the dismantling of interest rate controls increased real financial costs, but other factors increased the returns on operating assets more rapidly. During 1979-1981, financial costs jumped enough to more than absorb increases in gross earnings, which were probably due to Argentine demand. The rates of earning and capital formation were highest among exporters in the second subperiod, when a major export promotion program was in place. This pattern was reversed in the third subperiod, as the promotion programs were dismantled and real currency appreciation seemed to squeeze gross earnings of exportables relatively more. This unequal squeezing was probably due to redundant tariff and other protection for import-competing producers.