"Published: October 18 2004 20:29 | Last updated: October 18 2004 20:29
 
Presidential and congressional elections in Uruguay are less than two weeks away, but it is hard to believe as you walk through the streets of Montevideo, the capital. Balconies draped with banners of the country's political parties during previous elections stand bare today. Shopkeepers are only just starting to stick election posters in their windows. And the party campaign stalls along the Avenida 18 de Julio in the centre of town are attracting few customers.

For all the lack of interest, these elections come at a critical moment. Squeezed between Brazil and Argentina, Uruguay has had to weather the recent economic upheavals of its colossal neighbours, and its own finances are fragile. Foreign investors, who last year agreed to the country's voluntary debt restructuring, are particularly concerned about the future government's ability and commitment to honour the new terms.

More generally, policymakers in the industrialised world are busy reshaping policy towards a region that over the last two years has swung markedly to the left. A left-of-centre government in Uruguay following those of Brazil, Argentina and Paraguay would consolidate South America's political transformation.

So why such apparent voter apathy? Oscar Botinelli, a political analyst and pollster in Montevideo, believes part of the reason is that Tabaré Vázquez, the leftwing presidential candidate, has been leading the polls by a big margin for the best part of two years. 'Most Uruguayans think the election has already been decided,' he says.

Indeed, the latest polls give Mr Vázquez, leader of the Broad Front-Progressive Encounter (FA-EP), a coalition of centre-left and far-left political parties, 50 per cent of the vote. Fifty per cent plus one more vote would secure him the presidency in first-round voting on October 31 and thereby avoid a run-off with the second place candidate.

His nearest opponent, Jorge Larrañaga of the National party, is trailing with 36 per cent.

Guillermo Stirling of the ruling Colorado party has barely 10 per cent and even his most fervent supporters admit that defeat appears inevitable.

Mr Vázquez, a 64-year-old doctor who has run for president twice and lost has accumulated popularity by calling for greater transparency and efficiency in government, respect for human rights and the need for more comprehensive social programmes to alleviate the recent increase in poverty.

His insistence on forging a 'productive' Uruguay and his romantic vision of Mercosur, the South American customs union, are saturated with populism. But Mr Vázquez, and particularly Danilo Astori, a senator and his choice for economy minister, have calmed private-sector concerns by promising clear rules for investors, fiscal discipline, a freely floating exchange rate and monetary policy based on inflation-targeting.

With the air of a president-elect, Mr Vázquez has already travelled to Europe and Washington to meet with the multilateral lending agencies.

Like his opponents, he has promised to respect both the terms of the debt restructuring and the country's programme with the International Monetary Fund, which this year foresees a primary fiscal surplus before interest payments equivalent to 3.4 per cent of gross domestic product.

'We are not big enough to challenge the IMF,' says José 'Pepe' Mujica, a senator and prominent member of the coalition that Mr Vázquez heads.

'The relationship between Uruguay and the fund is good and we intend to keep it that way.'

All this has come as a relief for the international community, which is beginning to see Mr Vázquez as closer in spirit to Luiz Inácio Lula da Silva, Brazil'smarket-friendly president, than to Néstor Kirchner, Argentina's more populist president. 'If all goes well, a Vázquez victory will reconfirm that leftwing governments are not the end of the world,' says Arturo Porzecanski, a Uruguayan and chief emerging markets economist at ABN Amro. 'Whether it is the Socialists in Chile or the Labour party in Brazil, the fact is that sensible policies live on.'

The problem, he admits, is that moderates, including Mr Astori, come from the weaker factions of Mr Vázquez's coalition, and some wonder how resilient they would be in the face of demands from more radical groups, should economic growth start to slow.

For now, Uruguay is recovering rapidly from the 2002 banking crisis. A recent research note by Credit Suisse First Boston says real growth this year will be 11 per cent, the highest in more than three decades.

But with the country's debt at about 100 per cent of GDP and almost a third of the country's 3.4m population living below the poverty line, most analysts agree the next government will have little room for manoeuvre.

As a former Uruguayan economy minister puts it: 'If Vázquez wins, he will need to have an iron discipline and a little bit of luck.'