Strong financial support for the beleaguered Uruguayan banking system was announced Wednesday morning by the Uruguayan Economy Minister Alejandro Atchugarry following successful talks in Washington with the International Monetary Fund and the US Treasury that committed 1,5 billion US dollars in immediate assistance. The 1,5 billion US dollars check includes a 700 million US dollars advance from an IMF rescue package already agreed, and another 800 million US dollars from the United States Treasury
However all banks in Uruguay will remain closed for the rest of the week and two local banks involved in international speculation will be definitively closed.
On Tuesday the Uruguayan government suspended all banking activities in an attempt to stop the constant drain that, since the default of neighboring Argentina last December, has gobbled 5 billion US dollars in deposits and almost 75% of the country's international reserves that now stand "critically" below 700 million US dollars.
Mr. Atchugarry emphasized that the Uruguayan government "has an absolute commitment to protect all savings of depositors of the two banks", and vehemently rejected any chance of declaring a freeze on deposits and bank accounts, as happened in Argentina and is popularly known as the "corralito" and the "corralón".
"We're well aware of the current difficulties, but we have a united country and a community that is committed to solve these problems", said Mr. Atchurgarry who has been in the job for a week after his predecessor was unable to muster sufficient political backing for stiff austerity policies.
"Uruguay has been a strong performer in Latin America and deserves the ongoing support of the international financial community for its commitment to sound economic policy", said the US Treasury in an official release in Washington.
Mr. Atchugarry also requested from Congress a quick approval of the Financial System Fund bill, a fund specifically created to assist weak banks, and warned that the Central Bank will no longer rescue banks with solvency problems, a warning addressed to the share holders of two other local banks that face serious problems.
After the US Treasury release, (and formal bail out), foreign banks operating in Uruguay indicated that their main offices, (contrary to what happened in Argentina), will be supporting their branches in Montevideo if depositors panic persists.
The unexpected participation of the US Treasury in Uruguay is seen by local analysts as a strong support to possibly the most responsible and accountable of all political systems in the area, and together with Chile the two countries that have excelled in following sound economic policies.
Besides the gigantic bail out operation, (4,5 billion US dollars for an 18 billions GDP economy) performed by the IMF is interpreted as a possible test exercise for the area if the current turbulence continues.
The strong IMF and US Treasury participation is also a permanent remainder for "defaulted" Argentina and its political system that so far have been unable to reach an assistance agreement with international creditors and have plunged the country in one of the worst economic crisis in recent history.
Uruguay, strategically located between its two powerful regional neighbors has suffered the full impact of the Brazilian January '99 devaluation, and contagion of the permanent deterioration of the Argentine economy since late 1998 that ended in default and street protests with five presidents in just seven months.
Uruguay's economy has been virtually stagnant since 1998 and has lately contracted over 12% in the last twelve months in spite of having applied reasonably stable and balanced open market oriented policies.