I'm a rails developer, working on setting up an office in Montevideo for entp.com, i was the architect on yahoo fire eagle, and worked with the yahoo folks on pipes, before that i built odeo.com. Needless to say, i do startup stuff.

There are lots of good developers here, both Montevideo and Buenos Aires. The overhead of running / logistics of a company here are much harder than the US, but the cost of doing business is lower, with a few exceptions. You need 10 months deposit to rent an office! Crazy expensive. Also paperwork on incorporation is a pain in the ass.

There's a MontevideoValley and PalermoValley, which are more biz focused groups in both cities trying to cultivate startup culture. I recommend you go to their meetings, hang out / work from the coworking spaces... (we're starting one in montevideo, there are currently two in buenos aires).

Hope that helps.