News Brief No. 01/23

News Brief: IMF Completes Uruguay First Review

February 26, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Uruguay's performance under a 22-month, SDR 150 million (about US$193 million) stand-by credit approved on May 31, 2000 (see Press Release 00/35). As a result, Uruguay will be able to draw, if needed, up to the equivalent of SDR 74 million (about US$95 million) from the IMF. The Uruguayan authorities have indicated that they intend to continue treating the credit as precautionary.

In commenting on the Executive Board discussion, Eduardo Aninat, Deputy Managing Director and Acting Chairman said: "Following the recession in 1999, the Uruguayan economy faced a second difficult year in 2000, with a series of new adverse external economic shocks, and the level of economic activity did not rebound as was anticipated in the program. However, while the delayed recovery lowered fiscal revenue and led to a larger-than-expected overall fiscal deficit for the year, the authorities made considerable adjustment efforts to place the economy on a sound footing—especially by maintaining cautious public sector expenditures, while making complementary efforts to lower costs and improve competitiveness in the economy.

"The economy is showing clear signs of benefiting from the adjustment efforts, which bodes well for a recovery of economic activity in 2001. The external balance is making a strong contribution to growth; costs are declining in the economy; the real effective appreciation of the exchange rate that occurred following the devaluation of the Brazilian real in early 1999 has been substantially reversed; and there is progress in diversifying Uruguay's export markets. These efforts need to be sustained in the medium term.

"In recognition of the delayed recovery, the economic program for 2001 envisages a fiscal deficit of 2.6 percent of GDP. While this is larger than was anticipated originally, it recognizes partially the impact of automatic stabilizers on fiscal policy, while striking a balance with the need to maintain prudent debt indicators in the medium term. Indeed, the program for 2001 is an integral part of the authorities' effort to lower the public debt/GDP ratio from 2003-04, and to preserve Uruguay's good standing in international capital markets.

"Uruguay has made a good beginning at wage moderation and lowering overall costs in the economy to boost employment, promote private sector activity, and improve competitiveness—and this process is expected to continue in 2001. To build on these developments, the structural reform program should continue to be implemented as envisaged, including the de-monopolization of public sector enterprises, and the steps to enhance the soundness of public sector banks. In addition, disclosure should be strengthened with the publication of quarterly annotated financial reports on state enterprises and banks, while market-based transparency and discipline should be supported by annual audits and the disclosure of independent corporate credit ratings," Aninat said.