Press Release No. 04/254

Press Release: IMF Executive Board Completes Sixth Review Under Uruguay's Stand-By Arrangement

November 29, 2004

The Executive Board of the International Monetary Fund (IMF) completed today the sixth review under the SDR 1.99 billion (US$3.02 billion) Stand-By Arrangement for Uruguay. Completion of the review makes SDR 139.8 million (about US$212.3 million) immediately available to Uruguay. 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 (see Press Release No. 02/14) and was augmented by SDR 1.16 billion (about US$1.76 billion) on June 25, 2002 (see News Brief. No. 02/54), and by SDR 376 million (about US$571 million) on August 8, 2002 (see News Brief. No. 02/87).

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

"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.

"Bank restructuring and asset disposals are moving forward. BROU's restructuring plan is advancing, with the bank showing profits and reduced operating costs. The BHU is 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," Mr. Carstens said.