On completing last week the sixth review of the Stand-By arrangement, IMF praised the performance of the Uruguayan economy and the sound prospects for 2005, underlining authorities' commitment to preserving the stabilization and reform gains through the political transition. The strong fiscal outcome for 2004 will facilitate the achievements of other targets next year.
The sixth review under the SDR 1.99 billion (US$3.02 billion) Stand-By Arrangement with Uruguay makes SDR 139.8 million (about US$212.3 million) immediately available. In completing the review, the Board granted waivers for the nonobservance of three structural performance criteria and waivers of applicability of two quantitative performance criteria for which data were not available.
The Stand-By Arrangement was approved on March 25, 2002 in an amount equivalent to SDR 594.1 million (about US$902.2 million) for a 24-month period and was augmented by SDR 1.16 billion (about US$1.76 billion) on June 25, 2002, and by SDR 376 million (about US$571 million) on August 8, 2002.
Agustín Carstens, Deputy Managing Director and Acting Chair, said that Uruguay's performance under the Stand-By Arrangement has been solid. The economic recovery has been stronger than expected, with a strengthened outlook for debt sustainability, much improved financial indicators, and sound prospects for 2005, which reflect the authorities' strong policy implementation under the program, as well as relatively favorable external conditions.
"The authorities have reaffirmed their commitment to preserving the stabilization and reform gains through the political transition. In particular, they are committed to achieving a higher-than-programmed primary fiscal surplus this year, and to pursuing vigorously their successful reform agenda in the banking sector. The strong fiscal outcome expected for 2004 will facilitate the achievement of fiscal targets next year. To further strengthen the outlook for medium-term public debt sustainability, steps are being taken to strengthen revenue administration and the institutional budgetary framework. It will be important that these and other pending fiscal reforms, such as tax and pension reform, be taken forward by the next government.
"Monetary policy is being conducted in a prudent manner, appropriately aiming at gradually reducing inflation further. The central bank should take advantage of the strong balance-of-payments situation to bolster its international reserves further, in anticipation of the large medium-term debt service obligations coming due over the next few years".
Regarding bank restructuring and asset disposals Mr. Carstens said in one of the government's banks, BROU, restructuring plan is advancing, with the bank showing profits and reduced operating costs. As to the Mortgage bank "it's also making progress in strengthening its operations, but important underlying weaknesses remain, and timely implementation of the reform program being supported by the World Bank is essential". "The liquidation of the assets of the failed banks is under way, and steps are being taken to ensure transparency and good governance of the liquidation funds. The authorities should continue to refrain from granting any further compensation schemes to bondholders and large depositors of the liquidated banks", concluded Mr. Carstens.