MercoPress. South Atlantic News Agency

Uruguay prepares to return to money market

The Uruguayan government is optimistic about a first emission of bonds in international markets since the financial crisis of last year and the successful voluntary exchange of sovereign bonds last May.

A first "exploratory mission" to New York, Boston and London apparently was considered encouragingly responsive, particularly since the new bonds will be nominated in Uruguayan pesos, indexed to local inflation with repayment is US dollars. The first emission would be equivalent to 150 million US dollars and potential demand "doubles this figure", said Montevideo brokers.

When Uruguay experienced a bank run in early 2002 as a direct consequence of the Argentine crisis, Uruguayan bonds dropped to 80% of face value and to less than half when the country lost the "investment grade" rating awarded by risk agencies. Uruguay and Chile were the only countries in the area with the much coveted "investment grade". In the apex of the crisis Uruguay's debt reached almost equal to its GDP.

Cut off from private credit Uruguay was in the brink of default, as neighbouring Argentina, but financial and political support from the US Treasury, together with the IMF, helped the country program a voluntary bond exchange mechanism.

Last May Uruguay managed to reschedule almost all circulating sovereign bonds (equivalent to 5 billion US dollars) for longer term maturing documents.

Although the exchange was "friendly", brokers and analysts questioned the "voluntary" description. Actually the only option was for Uruguay to default.