Press Release: IMF Executive Board Completes Final Reviews Under Uruguay's Stand-By Arrangement

December 22, 2006

Press Release No. 06/301

The Executive Board of the International Monetary Fund (IMF) completed today the fifth and sixth reviews under the three-year, SDR 766.25 million (about US$1.15 billion) Stand-By Arrangement for Uruguay (see Press Release No. 05/136). As part of the reviews, the Board also granted waivers for nonobservance of performance criteria, and completed a financing assurances review..

On November 8, 2006, the Uruguayan authorities announced that they would shortly repay all outstanding obligations to the Fund and cancel the current Stand-By Arrangement. Full repayment of the equivalent of SDR 727 million (about US$1.1 billion) was made on November 30, 2006 and the authorities indicated that they wanted the arrangement to be cancelled shortly after the completion of the fifth and sixth reviews. Therefore, they do not intend to make any disbursement associated with the reviews.

In commenting on the Board meeting, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"The recovery of the Uruguayan economy from the crisis of 2002 has exceeded all expectations, paving the way for an early exit from Fund financial support. Sound policies and a supportive external environment have delivered a sharp economic recovery and low inflation, a declining debt ratio and rollover risk, and a vastly improved external position. The banking system, once at the center of the crisis, is now substantially stronger-better capitalized and with tighter prudential regulations to internalize risks from high financial dollarization.

"Continued policy efforts are needed to entrench macroeconomic stability, deepen structural reforms, and further reduce vulnerabilities. In the fiscal policy area, the intention to pursue policies in 2007 consistent with the medium-term primary surplus target of 4 percent of GDP, while maintaining appropriate levels of investment and social spending, is welcomed, as high primary surpluses should remain at the core of the strategy to reduce the debt burden and anchor policy credibility.

"With the recent passage of the tax reform, a major milestone in the reform agenda, preparations for its implementation in July 2007 need to proceed vigorously. It will also be important to move ahead with reform plans for the budget, customs, the social security bank, and the specialized pension schemes.

"While inflation is relatively low, the authorities should stand ready to adjust policies should inflation pressures emerge. Continued central bank buildup of foreign exchange reserves, consistent with exchange rate flexibility and the inflation objectives, would help increase reserve coverage, which is not as high as in other dollarized economies.

"In the financial sector, vulnerabilities need to be reduced further. Passage and implementation of the financial sector law in 2007 will be key to enhance central bank independence and strengthen the supervisory and bank resolution frameworks. Completing the restructuring of the housing bank (BHU) into a viable institution in the near term will also be important," Mr. Portugal said.


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