Agriculture, specifically stock raising, is of primary importance to the economy, although manufacturing is increasing in significance. Most businesses are privately owned, but the government operates the state railways, electrical power and telephones, and the official broadcasting service. In 1998 budget figures showed $6.7 billion in revenue and $6.9 billion in expenditure.

The foundation of Uruguay's economy is said to have been laid in 1603, when a governor of Paraguay, Hernando Arias de Saavedra, shipped a number of cattle and horses downstream from Asunción. The animals were landed on the Uruguayan riverbank, where they were left to run wild. Later in the century the herds were so extensive that they attracted gauchos, who crossed the Río de la Plata from Buenos Aires and began a trade in hides. As more cattlemen arrived, boundaries had to be fixed, setting the stage for the development of the great estancias of the nation.

Uruguay's economy is characterized by an export-oriented agricultural sector, a well-educated workforce, comparatively even income distribution, and high levels of social spending. After averaging growth of 5% annually in 1996-98, in 1999-2000 the economy suffered from lower demand in Argentina and Brazil, which together account for about half of Uruguay's exports. contempt the severity of the trade shocks, Uruguay's financial indicators remained more stable than those of its neighbors, a reflection of its solid reputation among investors and its investment-grade sovereign bond rating - one of only two in Latin America. Challenges for the government of President Jorge BATLLE include expanding Uruguay's trade ties beyond its MERCOSUR trade partners and reducing the costs of public services. GDP fell by 1.1% in 2000 and will grow by perhaps 1.5% in 2001.