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

June 28, 2006

Press Release No. 06/146

The Executive Board of the International Monetary Fund (IMF) completed today the fourth review under the three-year, SDR 766.25 million (about US$1.13 billion) Stand-By Arrangement for Uruguay (see Press Release No. 05/136). Completion of this review makes an additional SDR 85.8 million (about US$ 126.2 million) immediately available to Uruguay.

In completing the review, the Board granted a waiver for the non-observance of the performance criterion on police pension reform and its resetting for end-October 2006; the modification of the performance criterion on tax reform; and the modification of the end-June monetary performance criteria and targets.

In commenting on the Board review, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, said:

"Uruguay's recent economic performance under the Stand-By Arrangement, and the outlook for 2006, remain strong. Sound economic policies and market confidence in Uruguay's prospects, a strengthened external position, and an improved debt structure have helped the economy weather well the recent volatility in international financial markets. The authorities remain committed to continue implementing forward-looking policies to address medium-term vulnerabilities, including the high public debt and widespread financial dollarization.

"Robust growth provides Uruguay an opportunity to strengthen further its fiscal position. Exceeding the 2006 fiscal target is desirable, as it would help further lower the high public debt, control inflation, and moderate appreciation pressures. Efforts to strengthen tax administration and fully pass through international oil prices will also be important in this regard. In addition, approval of the tax reform, with its revenue-neutral and base-broadening elements, will be a key step toward improving the efficiency and equity of Uruguay's tax system.

"Monetary policy has successfully brought inflation to single digits in an environment complicated by remonetization and large capital inflows. The central bank's focus on building up reserves, while maintaining appropriate exchange rate flexibility, is well placed. The recent pickup in inflationary pressures is being monitored carefully, and the authorities stand ready to tighten monetary policies should developments suggest that the end-2006 target range could be missed.

"Financial sector reforms are progressing well. A financial sector bill currently under the Congress' consideration will, once approved, address several improvements identified by the government in consultation with the Fund and the World Bank.

"Looking ahead, Uruguay's key challenge will be to implement crucial structural reforms over the next months—including the tax, financial sector, and pension reforms currently before Congress. Over the medium term, the authorities should continue with the sustained implementation of strong macroeconomic polices, while persevering with steps to improve the business climate and strengthen labor market flexibility. Together, these will reduce vulnerabilities further and lay the basis for lasting growth," Mr. Carstens said.


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