MercoPress. South Atlantic News Agency

IMF praise for Uruguay

The Executive Board of the International Monetary Fund (IMF) praised Uruguay after having completed the third review under the Stand-By Arrangement for Uruguay anticipating the immediate availability of a disbursement of SDR 145.7 million, about US$204 million. The current Stand-By Arrangement was initially approved on March 25, 2002 in an amount of SDR 594.1 million (about US$823 million) for a 24-month period. The arrangement was augmented by SDR 1.16 billion (about US$1.6 billion) on June 25 2002 and by SDR 376 million (about US$521 million) on August 8, 2002.

In commenting on the Executive Board decision, Anne Krueger, First Deputy Managing Director and Acting Chair, said that Uruguay's performance has been favourable and "commendable progress has been achieved in containing the crisis and stabilizing the economy", adding that the authorities' firm implementation of sound macroeconomic policies and the successful recent debt exchange "have contributed to a notable improvement in economic and financial indicators. There are encouraging signs that the economy has bottomed out, bank deposits have continued to increase in recent months, and risk spreads have declined markedly".

"While the debt exchange has addressed the near-term financing needs and improved the medium-term debt profile, important tasks nevertheless still lie ahead. The authorities remain firmly committed to make further strong progress on the implementation of policies in the fiscal, banking, and structural areas that will be critical to ensuring a return to growth and sustainable debt dynamics".

"For 2003, the authorities are committed to attaining a primary surplus of 3% of GDP. To this end, they are exercising continued expenditure restraint, while taking steps to improve the social safety net and to strengthen tax collections. The continued commitment to a floating exchange rate regime is welcome, and base money will remain the intermediate target of monetary policy until technical and institutional conditions for implementing an inflation-targeting regime are met".

"Fully restoring stability and confidence in the banking system is a key element of the program. Important steps have already been taken and, in the coming months, the authorities will advance the restructuring of the two main public banks and finalize the resolution of the four liquidated banks".

"A return to sustained economic growth will depend on continued prudent macroeconomic policies and further structural reforms. To achieve a permanent improvement of the primary balance, Uruguayan authorities will further strengthen the revenue effort while reducing rigidities and raising efficiency in spending programs. Structural reforms will focus on strengthening competition, expanding the room for private sector activity, and further diversifying trade. Uruguay's political and legal institutions have proved effective in dealing with the financial crisis, and it is now essential to further build on the consensus already achieved on prudent macroeconomic policies to move forward with an ambitious structural reform agenda that will ensure a durable recovery of Uruguay's living standards," Ms. Krueger stated. In the last two weeks Uruguay's international reserves increased 265 million US dollars, from 1,164 billion to 1,429 billion US dollars, three times the level of last March, 462 million US dollars, the lowest ever.

The Uruguayan Central Bank July release indicates that the 1,429 billion US dollars reserve does not include IMF and other multilateral organizations credits extended to overhaul the Uruguayan financial system that in July 2002 almost collapsed forcing the closure of four private banks. However, current reserves are still half those of December 31, 2001 when the economy of neighbouring Argentina melted and gradually spilt over to the Uruguayan financial system.

Between December 2001 and July 2002 Uruguay lost almost half of its foreign currency bank deposits following a run mostly by non resident Argentine citizens. With the support of a 3,5 billion US dollars credit from IMF, other multilateral organizations and the US Treasury, Uruguay managed to overcome the worst banking crisis in the last seventy years.