Press Release No. 03/112

Press Release: IMF Completes Uruguay Third Review, Approves Request of Applicability of Performance Criteria

July 11, 2003

The Executive Board of the International Monetary Fund (IMF) completed today the third review under the Stand-By Arrangement for Uruguay, and approved the request for waivers of applicability, until July 22, 2003, of performance criteria for end-June. Upon completion of the review, a disbursement of SDR 145.7 million (about US$204 million) became immediately available.

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 (see Press Release No. 02/14). The arrangement was augmented by SDR 1.16 billion (about US$1.6 billion) on June 25, 2002 (see News Brief No. 02 /54), and by SDR 376 million (about US$521 million) on August 8, 2002 (see News Brief. No. 02/87).

In commenting on the Executive Board decision, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"Uruguay's performance under the Stand-By Arrangement has been favorable, and commendable progress has been achieved in containing the crisis and stabilizing the economy. 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 percent 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 public banks (BROU and the mortgage bank BHU) 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, the 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.