MercoPress. South Atlantic News Agency

Uruguay's economy expands 2,4%

Uruguay's economy expanded 2.4% during the third quarter of 2003 compared to a year ago seemingly suggesting that a recession that started in 1998 including a run on the banks in 2002, was coming to an end, according to the latest release from the Central Bank.

The release indicates that the Uruguayan economy faltered during the first half of 2003 given the strong retraction in domestic demand and drop in exports. However overseas sales picked up strongly during the third quarter, and last September the economy grew over 7% compared to a year ago.

The recovery was much speared by agriculture with strong prices for soybeans, rice, and sales of beef, hides and wool. Farm output actually jumped 7% in the first three quarters of 2003.

However black clouds still loom over the country's short term. Domestic demand remains debilitated given poor employment and salary prospects and the budget situation is still uncertain which could threaten a package of financial assistance crucial for next year's debt repayments.

The collapse of the Uruguayan financial system in 2002 and a strong devaluation of the local currency that was loosely pegged to the US dollar forced a GDP contraction in the range of 10% and rocketed unemployment.

IMF, World Bank, Interamerican Development Bank and the US Treasury that helped Uruguay overcome a collapse of its financial system in 2002 following the melting of the economy of neighbouring Argentina conditioned assistance to reforms in the banking system, pensions and government managed companies, most of which remain unaccomplished.

It is uncertain if the current government can muster the sufficient political support for these reforms when presidential elections are scheduled for October 2004 and only a week ago it suffered a landslide defeat in a referendum that would have enabled the government oil company associate with outside corporations and end with the domestic fuels monopoly.