MercoPress. South Atlantic News Agency

Uruguay has become an IMF creditor and contributed to bail-out Ireland

Economist Della Mea: Uruguay can request 4 billion dollars from the IMF if needed

Uruguay has become a net creditor of the International Monetary Fund and given this condition has helped in the bailing out of such countries as Ireland and Angola, revealed a top authority of the Central Bank during a hearing before the country’s Senate’s Finance Committee.

“Currently as strange as it might sound, Uruguay is a net creditor of the IMF and not a debtor”, said economist Umberto Della Mea, head of the Central bank Economic Advisory Department, adding that Uruguay has collaborated in bail-financing countries such as Ireland and Angola, “be it just in tens of millions of dollars” from Central bank reserves.

Della Mea also informed that Uruguay can request up to 4 billion dollars, six times its quota, from the IMF, which is a situation entirely different from a decade ago when the collapse of the Brazilian economy in 1999 and the melting and default of Argentina in 2001 left Uruguay on the brink and was saved by a bridge loan from the US Treasury.

Since then Uruguay has been committed to a policy which cuts as much as possible dependency on its two powerful (but unstable at different levels) neighbours.

The US Treasury loan, based on Uruguay’s reliability to Washington, was to give time to a reluctant IMF to manage a major package with a stand-by program to which the country strictly adhered and complied before time.

At the time the IMF Latin American desk favoured a Uruguayan default on the lines of Argentina to which Uruguayan authorities refused point blank and appealed directly to the US based on the country’s record of good payer and the fact it was not a domestic created situation.

Uruguay agreed with its sovereign bond holders a minor orderly voluntary ‘shave’ and was rapidly back on track.

By 2006 Uruguay was ready to cancel a billion plus dollars debt with the multilateral organization, the first of several instalments which meant that by the end of the decade the country had left the IMF list of those needing loans and was ranked among countries that could extend financing.

Della Mea explained that contributing to bail packages does not change much from an international reserves point of view “since they continue to be at full disposal of Uruguay and can be returned at any moment and the only difference is that they generate market interest rates since those are the conditions on which the IMF extends the loans to needy countries”.

The Central bank economist also explained that according to the last IMF quotas reassignment Uruguay’s has jumped from 306.5 million SDR (Special Drawing Rights) to 429.1 million SDR, equivalent to 675 million dollars. However Uruguay’s voting capacity has been reduced from 0.15% to 0.11%.

“The quota share is important because it determines the financing to which a country can aspire and which is normally 600% of the quota, and in this case is 4.04 billion dollars to which Uruguay can appeal if it needs to”, said Della Mea.

The Uruguayan economist said that IMF policy in granting loans has changed: “before they were basically stand-by programs with a set of targets to accomplish, but now the IMF has flexible credit lines available with no conditions for all those countries where annual reviews by the IMF are termed acceptable”.

He added Uruguay “has a good record and good name in the IMF” meaning the country can have access to the flexible financing “whenever we wish” for periods extending from two to six years.

But he Della Mea also cautioned that normally countries do not appeal to the IMF flexible credit line because it can be interpreted by voluntary money markets as a “signal of weakness”. So far only Colombia, Mexico and Poland have requested such financing.