Press Release No. 04/180

Press Release: IMF Completes Fifth Review of Uruguay's Stand-by Arrangement

August 27, 2004

The Executive Board of the International Monetary Fund (IMF) completed today the fifth review under the SDR 2.13 billion (US$3.1 billion) Stand-By Arrangement (SBA) for Uruguay. Completion of the review makes SDR 139.8 million (about US$204 million) immediately available to Uruguay. In completing the review, the Board granted waivers of nonobservance of two structural performance criteria on banking sector reforms and waivers of applicability of end-June 2004 performance criteria, for which data was not available, on the public sector primary balance and the nonfinancial public sector gross debt.

Furthermore, upon request by Uruguay in view of the improvement in Uruguay's economic outlook and external position, the remaining access under the SBA was reduced by SDR 139.8 million. Further disbursements under the SBA will be rephased in two equal installments of SDR 139.8 million each (about US$204 million) that will become available following the completion of Executive Board reviews expected in November 2004, and February 2005.

The SBA was approved on March 25, 2002 in an amount of SDR 594.1 million (about US$867 million) for a 24-month period (see Press Release No. 02/14). The SBA was augmented by SDR 1.16 billion (about US$1.7 billion) on June 25, 2002 (see News Brief. No. 2 54), and by SDR 376 million (about US$549 million) on August 8, 2002 (see News Brief. No. 02/87). Total commited resources under the Stand-By Arrangement now amount to SDR 1.99 billion (US$2.9 billion) taking into account the recently approved reduction in access.

In commenting on the Executive Board decision, Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Uruguay's performance under the Stand-By Arrangement continues to be strong. The ongoing economic recovery has been faster than expected, reflecting implementation of prudent policies and a favorable external environment. Unemployment is down, financial indicators continue to improve, and the economic outlook for the remainder of 2004 and 2005 is encouraging. Consolidating the stabilization gains and sustaining the recovery will require continued implementation of sound policies, especially in the fiscal and bank restructuring areas, and policy continuity during the upcoming election period.

"The authorities' commitment to a higher primary surplus target for 2004 is welcome, and will help enhance prospects for debt sustainability. To ensure that the target for this year will be met, primary spending will need to be kept within the program limits, tax revenue maintained, and public tariffs adjusted in a timely manner in line with cost developments. To bolster fiscal prospects over the medium term, revenue administration and the institutional framework for the budget will need to be strengthened, and pending reforms of the tax system and specialized pension funds implemented. The authorities are seeking consensus in support of the adoption of these essential reforms.

"Monetary policy has been appropriately tightened in recent months to ensure that inflation returns within the target band. The authorities' intention to raise the net international reserves target for 2004 will lock in part of the overperformance on the reserves front achieved in the first half of the year.

"Good progress is being made in restructuring the public financial institutions. BROU's strategic and operational reforms are proceeding as planned, and the BHU is reforming its operations with World Bank support. The process of asset disposal of three liquidated banks is now moving forward. Additional relief to bondholders and large depositors of the liquidated banks needs to be avoided.

"The authorities are committed to maintaining the policy framework through the upcoming election period, and recognize that there is no room for slippages. Attaining the program's objectives will be critical for sustained growth, financial stability, and public debt sustainability," Mr. Carstens said.