Economic integration with other Latin American nations was an important goal for Uruguay because of its small internal market. The idea of integration was enshrined in the nation's constitution, which stated that "the Republic will seek to achieve social and economic integration of the Latin American nations, especially to provide for a common defense of products and raw materials."

Sanguinetti played an important mediating role in the early discussions of integration between Argentina and Brazil, a delicate process because of the traditional rivalry between the two larger nations (see Foreign Relations under Democratic Rule, 1985-90 , ch. 4). Presidents Raúl Alfonsín of Argentina, José Sarney Costa of Brazil, and Sanguinetti held five trilateral meetings between 1986 and 1988, during which they signed several tariff-reduction agreements and discussed a long-term framework for regional economic integration.

The Uruguayan government predicted that the lower trade barriers would allow Uruguayan exports to Brazil and Argentina to increase by 80 to 90 percent by 1991. In practice, however, Uruguay's trade with its larger neighbors seemed to be affected more by exchange rates than by tariff and quota agreements. For example, Uruguay already had bilateral trade agreements with both Brazil and Argentina during the late 1980s, but in early 1990 exports to Argentina covered by the agreement actually declined. In contrast, exports to Brazil increased markedly during the first half of 1990 after the Brazilian government tightened liquidity and caused the Brazilian cruzeiro to appreciate.

Despite such early evidence that the trade agreements were having only a limited effect on regional commerce, Lacalle indicated in early 1990 that he expected Uruguay to continue to play a pivotal role in regional integration. He indicated further that he hoped the integration would be extended to include Paraguay and Bolivia. "We will try to open the Atlantic balcony to [those] inland countries," he said, "improving the operation of our ports, promoting the use of the Paraná-Paraguay waterway, and establishing free-trade zones near the ports for the manufacture of products from the South American 'hinterland'." Lacalle also said he proposed to President Andrés Rodríguez Pedotti of Paraguay the formation of a trinational fleet of merchant vessels to carry Uruguayan, Paraguayan, and Bolivian products to markets in North America, Europe, and Asia.

Thus, Lacalle envisioned Uruguay not only as a participant in trade agreements with its larger neighbors but also as a close partner with the smaller and apparently more stable economies of the region. A noteworthy aspect of Lacalle's plan was its stress on the development of the regional infrastructure. Lack of such an infrastructure--there was no railroad bridge between Uruguay and Argentina, for example, until the Salto Grande Dam opened in 1982--remained a serious impediment to regional integration.

Data as of December 1990