MercoPress, en Español

Montevideo, March 28th 2024 - 17:39 UTC

 

 

Uruguay's financial ordeal

Saturday, August 24th 2002 - 21:00 UTC
Full article

Uruguay revealed this week some details of the Letter of Intention and Economic Policies Memorandum agreed with the International Monetary Fund, IMF, (that enabled the country to have access to a massive 3,9 billion US dollars assistance), forecasting a further two years of record recession.

According to the document the Uruguayan Gross Domestic Product, GDP, will drop 11% in 2002 and a further 4,5% in 2003, although in the last two quarters a strong recovery is anticipated. Inflation is expected to reach 40% in the current year and 50% in 2003, although declining towards the end of that year. Budget deficit is estimated in 3,5% of GDP in 2002 and 1,5% in 2003. However the current account balance will be positive in both years, 1,5% of GDP. The IMF package fund (including a temporary 1,5 billion US dollars bridge loan sponsored by the G 7 and delivered by the US Treasury) was desperately needed following the financial crisis and a run on the local banks that cost Uruguay almost half of its deposits and 80% of its international reserves. With the 1,5 billion US dollars emergency loan, Congress hastily approved the Banking Strengthening System Fund and froze for three years long term deposits in government banks in an attempt to stop the run. Last mid May Uruguay began to suffer the full impact of neighbouring Argentina's financial contagion when Argentine residents began massively withdrawing their deposits in what was until then Montevideo's banking haven. When it was disclosed that at least two Uruguayan banks were under Argentine control and another was involved in laundering operations in Argentina through an off shore institution in Cayman Island, panic took over and Uruguay began loosing deposits at a rate of 100 million US dollars per day. According to the IMF agreement insolvent private banks unless re capitalized, will inevitably suffer closure, and in the future, "all those banks unable to face deposit withdrawals or with insufficient capital, will be intervened and definitively closed". The agreement also covers other areas demanding reforms in the government banking system, in the social security pension system and market competition in areas such as telecommunications and fuels, currently government monopolies. Before the beginning of the current situation Uruguay's GDP was estimated at just over 20 billion US dollars; deposits in the financial system reached 14 billion US dollars and international reserves almost 3 billion US dollars. During the climax of the crisis Uruguay received full support from the Group of Seven Industrialized countries, G 7, United States, Britain, France, Germany, Italy, Canada and Japan. Foreign banks with offices in Uruguay in full page ads in local newspapers expressed their full support to government policies and anticipated their main home offices would respond for all deposits in Montevideo branches.

Categories: Mercosur.

Top Comments

Disclaimer & comment rules

Commenting for this story is now closed.
If you have a Facebook account, become a fan and comment on our Facebook Page!