The International Monetary Fund (IMF) today completed the first review of the Stand-by credit for Uruguay (see Press Release 99/12), which is being treated by the authorities as precautionary.

In commenting on the IMF Executive Board's discussion of the review, Shigemitsu Sugisaki, Deputy Managing Director, made the following statement:

"Directors welcomed the progress made by the authorities in maintaining macroeconomic stability in what was shaping up to be a challenging year for Uruguay. The authorities were commended for their consistently cautious fiscal and monetary policies and the demonstrated willingness to take timely steps in these areas, as required by the circumstances. Directors noted that the faster-than-expected progress in reducing inflation partly reflected the authorities credibility and the public's underlying confidence in overall macroeconomic policies. However, Directors also noted some slippages with structural reforms lately, and urged the authorities to press forward with those reforms as soon as possible.

"Directors noted that the external macroeconomic environment had taken a turn for the worse by the depreciation of the Brazilian real in January 1999 and the accompanying slowing of growth in the region. In this context, they felt that a moderate widening of the fiscal deficit, limited to the effects of the more difficult cyclical position of Uruguay, was warranted. The authorities' careful steps to lower some taxes to help reduce costs in the economy and regain external competitiveness were welcomed.

"Directors noted that the adjustable exchange rate band arrangement had been instrumental in lowering inflation expectations in Uruguay while affording flexibility to respond to the weaker export environment and saw merit in continuing with this arrangement. Directors stressed the importance of continuing to promote bank soundness, and noted that recent measures by the Central Bank and adjustments in lending behavior by private banks had been timely and appropriate. However, Directors urged the authorities to place the public banks on an equal regulatory and operational footing with the private banking system, and limit the refinancing operations under way in public official banks," Sugisaki said.