MercoPress. South Atlantic News Agency

Uruguay in Intensive Care

With ample political support from the ruling coalition and even recognition from legislative opposition, Uruguay named this week a new Economy Minister, Senator Alejandro Atchugarry.

Mr. Atchugarry takes over from Alberto Bension who has been managing Uruguay's economy since the current Jorge Batlle administration took office in March 2000, but who lost political favor following a run on the financial system that has also plunged the Uruguayan currency.

Actually Mr. Bensión and overall the Batlle administration have been most unfortunate since Uruguay is suffering the full impact of the political, economic and financial crisis of neighboring Argentina.

Uruguay's economy, highly dependent from Argentina and Brazil, has been virtually stagnant since 1999 following the Brazilian devaluation of January '99 and the Argentine collapse that ended in the default of December 2001.

Although the International Monetary Fund and multilateral financial institutions have pledged ample support for Uruguay, almost 3 billion US dollars, in an attempt to avert the Argentine contagion, the country remains with a depressed demand, low tax revenue, depleted international reserves, a budget deficit of almost 4,2% of GDP and a distrustful mood in the population regarding the capacity of the political system to respond to the serious situation.

In the first half of the current year the economy shrank 10%, and optimistic forecasts predict an 8% contraction for the whole year. However more conservative estimates talk of a 12 to 14% contraction, with unemployment rocketing to 18%.

Mr. Atchugarry is a respected Senator from the ruling Colorado party and has a long experience in the Senate Finance and Planning Committee, besides being one of president Batlle's closest aides and most trusted political advisors.

However Mr. Atchugarry's job won't be easy because besides the depressing economic indexes inherited, Uruguayan bank depositors have lost trust in the financial system and are massively withdrawing their assets, fearful of a fate similar to that suffered by the Argentine banking system.

Uruguay's Central Bank authorities have also been questioned by Congress regarding the rescue packages for two of the largest private banks, and have also resigned, following disclosure of gross mismanagement.

In the seven months of 2002 Uruguay lost 68% of its international reserves, and the currency depreciated in just one month 40%.

One of Mr. Atchugarry's first tasks will be to travel to Washington and convince IMF officials he has full political support and request an advance disbursement of promised funds so as to stop the run on the banking system and prop the peso.