Press Release: IMF Approves Stand-By Credit for Uruguay

March 1, 1996

The International Monetary Fund (IMF) today approved a stand-by credit for Uruguay authorizing drawings up to the equivalent of SDR 100 million (about $148 million), over the next 13 months, in support of the Government's 1996 economic program. The authorities of Uruguay intend to treat the stand-by as precautionary.


Between 1990 and 1994, the Government of Uruguay implemented policies aimed at reducing inflation and fostering output growth, which were supported by IMF stand-by arrangements approved in 1990 and 1992, and included IMF monitoring of Uruguay's economic program in 1994. The annual growth rate of real GDP averaged 4 percent in 1990-94, compared with a historic annual trend of about 2 percent; inflation was reduced to 44 percent in 1994 from 130 percent in 1990 ; and the investment/GDP ratio rose to 14 percent in 1994 from 11 percent in 1990. Progress also was made in strengthening public finances, reducing wage indexation, opening up the economy, and curtailing government intervention in the economy.

In early 1995, Uruguay's external environment deteriorated following the financial crisis in Mexico, and the risk of significant shortfalls in export earnings and large capital outflows increased substantially. As a result, the Government that took office in March 1995 promptly implemented a macroeconomic program to ensure that confidence was maintained and that Uruguay's external vulnerability was reduced. While economic activity declined by 2.5 percent in 1995, the external current account deficit narrowed to 2 percent of GDP from 2.5 percent of GDP in 1994, gross international reserves strengthened to over 5½ months of imports of goods and services, and inflation was reduced further to 35 percent by end-1995.

The 1996 Program

The Government's 1996 economic program seeks to consolidate the progress that has been made in recent years in macroeconomic stabilization, increase the economy's resilience to external shocks, and promote sustainable economic growth. It has been framed in the context of a medium-term strategy to lower inflation gradually to industrial country levels, to improve resource allocation, and to raise national saving and investment. The program aims at real GDP growth of 1 percent, reducing the external current account balance, lowering the annual rate of inflation to 20 percent by year-end, and maintaining international reserves at the equivalent of 5 1/2 months of imports, while lengthening the average maturity of public debt. To these ends, fiscal policy envisages a lowering of the public sector deficit to .5 percent of GDP in 1996 from 1.7 percent in 1995, reflecting mainly a strengthening of public sector saving. Incomes policy will support the program's fiscal and inflation objectives. Credit policy will be geared towards achieving the inflation and balance of payments targets of the program. The rate of crawl of the exchange rate band will be consistent with the targeted lowering of inflation, while tax measures and structural reforms are being implemented to strengthen external competitiveness.

Structural Reforms

Structural reforms under the program include implementation of the recently enacted reform of the social security system. The operations of the main social security system will be modernized and decentralized, and the system of tracking down individual contributions, which is essential for improving the administration of social security contributions and pension benefits, will be fully established in the first half of 1996. Also, the Government will propose legislation to reform the pension plans of the military, the police, and remaining private sector plans. The authorities plan to reform the Central Administration in an effort to reduce current government expenditure in the medium-term, while increasing public sector efficiency in delivering essential services. Private sector participation is envisaged in areas such as electricity generation and transmission; natural gas transportation and distribution, railways and roads, ports, water and sewage collection, and telecommunications. Steps are also being taken to increase the efficiency of domestic financial intermediation to help raise domestic saving and investment and promote Montevideo as a financial center within MERCOSUR.

Addressing Social Needs

A comprehensive reform is being designed to improve the quality and provision of public education services. The reform will cover primary and secondary education and includes improved teacher training, the restructuring of teacher's salaries, modifications of curricula, supplying of teaching materials, and the construction of schools and other infrastructure.

The Challenge Ahead

Uruguay is making significant progress in strengthening its public finances and promoting solvency through comprehensive reforms of the social security system and the Central Administration. In order to achieve the program's objectives, firm control will be required over central administration and public enterprise expenditure.

Uruguay joined the IMF on March 11, 1946; its quota1 is SDR 225.3 million (about $333 million). Its outstanding use of IMF credit currently totals the equivalent of SDR 12 million (about $18 million).

Uruguay: Selected Economic Indicators

  1992 1993 1994 1995* 1996**

(percent change)
Real GDP 7.9 2.5 5.1 -2.5 1.0
Consumer prices
    (end of period)
58.9 52.9 44.1 35.3 20.0
(percent of GDP)
Combined public sector balance
    (deficit –)
0.1 –1.9 –3.2 –1.7 -0.5
External current account balance,
    excluding grants
    (deficit –)
-1.0 –2.0 –2.5 –2.0 –1.6

Sources: Uruguayan authorities; and IMF staff estimates.

1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access the IMF financing, and its allocation of SDRs.


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