Press Release: IMF Approves Stand-by for Uruguay

June 20, 1997

The International Monetary Fund (IMF) today approved a 21-month stand-by credit for Uruguay equivalent to SDR 125 million (about US$174 million), in support of the government’s 1997-98 economic program. The government of Uruguay does not intend to make drawings under the stand-by credit and will treat it as precautionary.


The Uruguayan economy has gradually strengthened during the 1990s, as progress has been made in reducing indexation, improving the public finances, opening the economy, and curtailing government intervention. As a result, the rate of inflation came down substantially and per capita GDP grew on average by over 3.5 percent from 1990 to 1994 before declining by 2.5 percent in 1995 following the Mexican crisis. To restore confidence, the new administration, which took office in March 1995, adopted an IMF-supported program that tightened financial policies and introduced reforms in the social security and tax systems, public administration, and the financial sector. Economic activity expanded by almost 5 percent in 1996, inflation continued to decline, and the balance of payments remained strong. However, the unemployment rate, despite declining from a peak of 13 percent in the second quarter of the year, remained high at 11.6 percent at the end of 1996.

The 1997-98 Program

Uruguay’s 1997-98 economic program is framed in a medium-term strategy that seeks to reduce inflation to single-digit levels by the end of 1998 in an environment of sustained output and employment growth, and to achieve a viable external position. The program aims at real GDP growth of at least 3 percent in 1997 and 3 percent in 1998, led by expanded investment and exports; a reduction in the rate of inflation to 14-17 percent by end 1997, and a further strengthening of the international reserve position.

To achieve these objectives, policies under the program include consolidation of public finances; prudent credit and wage policies -- including gradual desindexation of wages and administered public sector prices; and ongoing structural reforms. In 1997, the combined public sector deficit will be contained at 1.7 percent of GDP, even though the cost of central administration and pension reforms is expected to almost double to 1.5 percent of GDP from 0.8 percent. General government revenue is expected to increase by 0.5 percent of GDP, partly as a result of improvement in the operating results of public enterprises, while general government current expenditure is programmed to decline by 0.7 percent of GDP, due to decreased purchases of goods and services and a reduction in administrative costs in the social security system.

Structural Reforms

Structural reforms already initiated will continue under the program. Reform of the main social security system is expected to be completed in 1997, with a further shift of about 100,000 persons from the public to the private system. State reform is expected to reduce government positions through the elimination of vacancies, outsourcing, and reduction in employment. The government is also increasing the participation of the private sector in activities previously reserved for public entities, such as electricity generation; telecommunications; and the marketing of petroleum, cement, and alcohol products.

Addressing Social Needs

Uruguay has the lowest level of poverty in Latin America and the Caribbean, and is one of the few countries in the region that have achieved significant and sustained reductions in poverty since the mid-1980s. Special efforts are being made under the program to further assist the most vulnerable groups in society, which include children of poor families, young mothers, and low-income workers, through specific targeted programs.

The Challenge Ahead

To reduce inflation to international levels, financial policies will have to remain tight and the authorities need to make further progress at desindexing the economy. Also, while substantial progress was made during 1996 in implementing reforms in the social security system, it remains very expensive and additional progress in firming up the pension system in the short-run through stronger enforcement of pension eligibility requirements and better administration of contribution collections will be important for the success of the economic program.

Uruguay joined the IMF on March 11, 1946; its quota1 is SDR 225.3 million (about US$314 million); and its outstanding use of IMF credit currently totals SDR 2.0 million (about US$3 million).

Uruguay: Selected Economic Indicators





(Percent change)

Real GDP





Consumer prices (end of period)





(Percent of GDP)

Overall fiscal balance (deficit -)





External current account balance (deficit -)





(Months of imports of goods and services)

Gross international reserves





Sources: Uruguayan authorities; and IMF staff estimates.

* Preliminary.

** Program.

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


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