US Bridging Loan to Uruguay

["D OC" <donaloc@xxxxxxxxxxxxxx>]

I know its the bbc but...

Monday, 5 August, 2002, 06:52 GMT 07:52 UK
US bails out Uruguay economy

The United States is to provide Uruguay with a $1.5bn emergency loan to help
it deal with its economic crisis.
American officials say the funds are necessary to allow Uruguay to open its
banks on Monday.

This will be the first time that President George W Bush's administration
has agreed to provide direct support to a country in economic trouble.

The news came as the country's parliament approved legislation which lets
the government block people's access to hard currency held in state bank
accounts.

Economy Minister Alejandro Atchugarry had urged the country's lawmakers to
quickly approve the Banking System Stability Act.

Uruguay shut down its banking system last Tuesday in an attempt to head off
a dangerous run on the banks.

The action sparked looting and riots in the country's capital, Montevideo on
Thursday.

Mr Atchugarry is hoping that the new measures will restore investor
confidence in the country and help persuade the International Monetary Fund
(IMF) to lend more money to Uruguay.

Also on Sunday, US Treasury Secretary Paul O'Neill arrived in Brazil, with
plans to visit Uruguay and Argentina later in the week.

All three countries - along with Peru, Ecuador and Colombia - are currently
negotiating with the IMF for fresh loans.

Brazil is being buffeted by fears that it could default on $250bn public
debt if a left-winger wins the October presidential election.

"Clearly there's a regional crisis," said Michael Mussa, senior fellow at
the Institute for International Finance and the IMF chief economist from
1991-2001.

"All of the important countries with the exception of Chile are either in
deep (trouble) or are headed rapidly in that direction."

Analysts said the region's problems began when Brazil, Argentina and other
countries failed to reduce their debt levels during years of growth in the
1990s.

Now as investors rush to sell off Latin American debt, the countries are
being plunged into a vicious cycle as it becomes more expensive to borrow
money.

The $1.5bn in American money could allow Uruguay to re-open its banks on
Monday, although US officials have stressed that it is only a bridging loan
to be repaid in a matter of days when an IMF package comes through.

Previously, Mr Atchugarry had seemed to suggest that the country's banks
would stay closed until Uruguay had reached an agreement with the IMF.

...

The banks were closed on Tuesday after they suffered a rush of withdrawals,
as people became increasingly anxious that their bank accounts were going to
be frozen.

In the first seven months of 2002, total bank deposits in the country have
fallen by 40%.

The Uruguayan economy has been in recession for three years, and its peso
has sunk in value from 17 to the US dollar in late June, to its current
level of 28 to the dollar.

Full: http://news.bbc.co.uk/2/hi/business/2171565.stm


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