MercoPress. South Atlantic News Agency

Voluntary debt restructuring in Uruguay

Uruguayan officials will be travelling to the United States and Europe in an attempt to convince bond holders of a voluntary restructuring of the country's debt.

Uruguayan Central Bank president Julio de Brum said the restructuring would consist mainly of bonds coming due over the next five years.

"It's aimed at clearing financing over the next five years beginning 2004. The voluntary mechanism will work if there is a high level of participation", said Mr. De Brum.

The announcement was long expected by the financial world after Uruguay's economic situation deteriorated following the economic meltdown of Argentina in 2001/2002 and Brazil's shaky standing since it devalued its currency in January 1999. Both countries make up most of Uruguay's foreign trade in the framework of Mercosur.

Uruguay has been known for its political and economic stability and its banking secrecy laws attracted many deposits to the country's financial system. However the Argentine default led to runs on Uruguayan banks deteriorating the debt situation that until then was manageable.

The runs cost Uruguay 40% of the banking system deposits, forced the free flotation of the peso and public debt of 11,4 billion US dollars is now equivalent to 80% of the country's GDP. This year alone Uruguay had debt obligations of 1,6 billion US dollars.

During this process the Uruguayan government received strong political and financial support from the Bush administration, and the restructuring of the debt has been agreed with several first line international brokerage companies and the Inter American Development Bank.

Uruguayan Central Bank sources indicated that the first reactions to the announcement were "encouraging and positive".