News Brief No. 02/54

News Brief: IMF Increases Stand-By Credit to Uruguay by US$1.5 Billion

June 25, 2002

The International Monetary Fund (IMF) today increased its current Stand-By Credit to Uruguay by SDR 1.16 billion (about US$1.5 billion) to SDR 1.75 billion (about US$2.28 billion). Uruguay may draw up to SDR 386.1 million (about US$508 million) immediately. A further SDR 496 million (about US$650 million) will become available under the augmented Stand-By Arrangement during the remainder of 2002, subject to further review by the IMF Executive Board.

The original 24-month Stand-By Credit of SDR 594.1 million (about US$781 million) was approved by the Executive Board on March 25, 2002 (see Press Release 02/14). The augmentation involves a blend of resources in the credit tranches (two-thirds of the total) and under the Supplemental Reserve Facility (SRF).

Commenting on the Executive Board decision, Horst Köhler, Managing Director and Chairman, said:

"The Executive Board welcomed the Uruguayan authorities' determined response to the challenges affecting the economy by strengthening the macroeconomic framework and establishing a credible strategy to restore confidence in its banking system. Implementation of this reinforced program, which the Fund strongly supports, will help Uruguay deal with the contagion effects from the Argentine crisis, place the economy and the public finances on a sounder footing, and create the conditions for a resumption of sustained growth. Strengthened policies are also expected to underpin Uruguay's continued access to international capital markets in the future, and to boost official financing, including from multilateral development banks.

"The authorities' program focuses on rebuilding public confidence in the soundness and liquidity of the banking system. A key measure is the establishment of a specialized fund to deliver liquidity and, if needed, capital support to banks with adequate financing and safeguards. The authorities will also speed up the restructuring of public banks, especially the Mortgage Bank, for which assistance is being sought from the World Bank. Depositors' confidence will be further enhanced by a strengthening of prudential regulations and a reinforcement of the supervisory role of the Superintendency of Banks.

"The program also aims at ensuring medium-term public debt sustainability, through a significant reduction of the public sector deficit. To achieve this objective, the authorities have introduced important revenue measures as well as expenditure restraint, including in the areas of wages and pensions. In addition, a comprehensive tax reform will help ensure fiscal sustainability over the medium term.

"The authorities are committed to making further progress in improving the conditions for a quick resumption of sustained growth. The recent float of the peso will provide the economy with additional flexibility to deal with external shocks. To foster productivity increases and economic growth over the medium term, it will be important to continue with the efforts to deregulate the economy and open up to the private sector areas previously reserved for the public sector," Mr. Köhler said.