MercoPress. South Atlantic News Agency

Uruguay and IMF reach an agreement

Uruguay reached an agreement with the International Monetary Fund that should give the country access to much needed financial assistance.

Although details of the letter of intent are still being drafted Uruguayan officials said that the agreement covers fiscal year 2003 and includes a primary budget surplus of 3,5% of GDP, a fiscal deficit budget equivalent to 3,1% of GDP, 27% inflation and a further 2% contraction of the economy.

However it is expected that in the second half of 2003 the economy will begin to pick up, after four years of recession and financial turmoil, particularly during the last twelve months following the collapse of the Argentine economy that triggered a run on Uruguayan banks that lost 40% of their deposits.

With the political backing from United States and financial aid from the IMF, Uruguay managed to avoid defaulting, (as happened in Argentina) and was granted a huge loan: 2,8 billion US dollars, possibly one of IMF's largest ever taking into account the country's GDP. Nevertheless the quarterly disbursement of the credit was halted until Uruguay and the IMF could reach an agreement regarding budget, fiscal, banking and monetary policy.

IMF is also insistent that Uruguay comes to an understanding with its creditors regarding its debt that is equivalent to 80% of the country's 15 billion US dollars GDP. Uruguay refuses to reschedule or reprogram its debt, mostly in government bonds, arguing the country can and will service its standing debt, recalling that contrary to regional practice Uruguay has always repaid.

"We prefer a friendly management of the debt with our creditors", said a reliable Uruguayan Central Bank source.

Uruguay must make a total of 1,4 billion in debt payments this year, an amount the country is unlikely to repay without the resumption of the IMF disbursements and some kind of understanding regarding its debt.

An official release from the office of Mr. Anoop Singh, Director of Western Hemisphere Department of the International Monetary Fund indicated that discussions with Uruguayan officials, initiated in Montevideo had continued in Washington D.C. and "we have reached agreement with the Uruguayan authorities on the basis of an economic program for 2003. This program defines a fiscal and financing framework to pave the way for medium-term economic sustainability and growth. The program will also carry forward bank reforms aimed at strengthening the domestic banking system. The authorities are finalizing a letter of intent which they expect to complete in the coming days. We are confident that the envisaged economic program will be supported by the international community and build a strong foundation for Uruguay to return to sustained growth. We plan for Board consideration of the program in mid March."

According to Uruguayan Finance Minister Alejandro Atchugarry the 24 months agreement extends until March 2005, and will open the way for immediate access to a billion US dollars credit from the IMF, World Bank and Interamerican Development Bank.

However Mr. Atchurgarry pointed out that the targets are "indicative", they will be reviewed next June, and anticipated that the "economy will be growing between 3 and 4% by 2004".

Regarding the country's huge debt Mr. Atchugarry said it will be managed prudently with possible bond maturing extended, but "only on a voluntary basis, it will never be compulsive".