Uruguay orders banks closed amid deepening economic crisis

posted by Chuck0 on Tuesday July 30 2002 @ 09:50PM PDT


Uruguay orders banks closed amid deepening economic crisis

Tue Jul 30, 8:17 PM ET

By RAUL GARCES, Associated Press Writer

MONTEVIDEO, Uruguay - Uruguay ordered its banks closed in an attempt to staunch the flow of capital in the midst of a growing financial crisis.

The stock market also closed early Tuesday after the government earlier in the day suspended banking by Banco Montevideo and Caja Obrera for "the non-fulfillment of regulations."

The amount of capital in many banks has fallen dramatically in recent weeks, as hundreds of millions of dollars have been taken out of the financial system.

Uruguay's Economy Minister Alejandro Atchugarry said the government had suspended the two banks because it was not prepared to lend them any more assistance.

The minister, appointed only last week, also said Uruguay would continue efforts to meet its debt obligations and keep a tight grip on fiscal and monetary policy, an approach given strong approval by the International Monetary Fund ( news - web sites) in recent months.

"Our officials, our representatives are working with the interest and support of the said (multilateral) organizations to work out a solution and a program that allows us to move forward," Atchugarry said at a news conference. "Everyone is very aware of the effort Uruguay is making,"

Earlier Tuesday, long lines formed outside the capital's main banks as people hearing rumors of the banking holiday sought to take as much of their savings as possible from automatic teller machines. The government later announced that ATMs would be shut down.

Meanwhile, in Washington, the U.S. government said it would support new loans from the IMF to help Uruguay get through the current crisis.

"Uruguay has been a strong performer in Latin America and deserves the ongoing support of the international financial community for its commitment to sound economic policy," the U.S. Treasury Department ( news - web sites) said in a statement.

Uruguayan officials are currently in Washington, negotiating with the IMF to receive the latest payout from a total of dlrs 3 billion that the agency has lent them for this year and next.

Uruguay's banking system has been badly shaken by the deep economic crisis and financial system meltdown in neighboring Argentina, which has made savers jittery and made it hard for the country to raise credit. The country is also laboring through its fourth year of recession.

At the close of last year, Uruguay's banks had around dlrs 13 billion in deposits. That number has now fallen below dlrs 9 billion. On Monday alone, dlrs 52 million was taken out of the banks, the latest figures from the Central Bank indicated.

At the same time, the Central Bank's dollar reserves have fallen from dlrs 3 billion to just dlrs 622 million, with the stock of dollars slipping dlrs 123 million alone on Tuesday.

The value of Uruguay's peso fell steeply Tuesday, with the dollar fetching 30 pesos at the day's close. On June 20, when Uruguay decided to float its currency, the peso was trading at 17 to the dollar.

Alberto Bernal, an economist at New York-based think tank IDEAglobal, says the outlook for Uruguay looks gloomy.

"Many savers in Uruguay are Argentine and they are going to take out their savings and look to put them in safe havens. It looks as if probably the situation will worsen," he said.

Uruguay | IMF | AGP