For more information, see Uruguay and the IMF

The following item is a Letter of Intent of the government of Uruguay, which describes the policies that Uruguay intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Uruguay, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Montevideo, Uruguay
January 30, 2001

Dear Mr. Köhler:

For the first review of the 22-month stand-by arrangement from the Fund, which was approved by the Executive Board on May 31, 2000, the attached policy memorandum and annexes describe recent developments under the economic program for 2000, and the policies and objectives of the Government of Uruguay for 2001. The arrangement is in the amount of SDR 150 million, and the government is treating it as precautionary. In 2000, the Uruguayan economy did not recover as had been envisaged in the economic program, in part because several new external shocks contributed to a drop in national income for the second year in a row. In view of these adversities, the Government is requesting a waiver for the nonobserved performance criteria of the program for end-December 2000. The Government believes that the policies for 2001, described below, will promote the recovery of sustainable growth of output and employment in conditions of low inflation and external viability, improve efficiency in the economy in general and in the public sector in particular, and address priority social needs.

During the period of the arrangement, the authorities of Uruguay will maintain close relations with the Fund and consult on the adoption of any measures that may be needed, in accordance with the Fund's practices on such consultations. The second review of the program will be carried out with the Fund no later than July 2001.

    Sincerely yours
    César Rodríguez-Batlle
    Central Bank of Uruguay
    Alberto Bensión
    Minister of Economy
    and Finance

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street NW
Washington, D.C. 20431


Memorandum of Economic Policies

I. Developments under the program in 2000

1. Following a downturn in economic activity in 1999, Uruguay continued to face unexpectedly difficult economic conditions in 2000. After the competitiveness shock incurred with the devaluation of the Brazilian real in January 1999, the output contraction appeared to be coming to an end when Uruguay registered a slight expansion in seasonally adjusted real GDP in the last quarter of 1999 and the first quarter of 2000. However, the recovery was not sustained in the second quarter, nor did economic activity accelerate in the second half of the year, as was expected under the program. As a result, real GDP is now estimated to have declined by more than 1 percent in 2000. Consumer price inflation ended the year at 5 percent, slightly below program assumptions, but the unemployment rate increased from 11 percent at end-1999 to 14½ percent in recent months, reflecting the delay in the economic recovery, and some distortions in the labor market, such as the high health care premium for labor market entrants.

2. A number of adverse factors help to explain these economic difficulties. Uruguay experienced a sharp drop, for the second year in a row, in the terms of trade as the economy faced a large increase in oil import prices, while prices for most of our (agricultural) export commodities remained weak. Moreover, demand for Uruguayan products in Europe was depressed by the 22 percent depreciation of the euro against the U. S. dollar during 2000. There were also some interruptions in access for products from Uruguay (rice, dairy products, bicycles, etc.) to the countries in the region, which are now being resolved, but nevertheless caused some export losses. Moreover, economic activity in Argentina has been weaker than envisaged, and has affected consumer confidence and demand. Lastly, the availability of manufacturing exports of agricultural origin was limited early in the year by adverse weather conditions, while a localized outbreak of foot and mouth disease interrupted meat exports in November and December 2000 (meat exports account for 21 percent of total merchandise exports). Consumers and investors have been concerned about these shocks, and they maintained cautious spending plans. For the second year in a row, domestic demand fell in real terms, which limited output growth. Regarding producers in Uruguay, we believe that some of the shocks noted above imply a new relative price equilibrium in the economy, and that producers and suppliers will need additional time and effort to adjust their own costs and prices accordingly.

3. Notwithstanding the challenges, Uruguay also made important progress in several economic areas in 2000. Competitiveness is on the rebound. By end-2000, a significant share of the sharp appreciation in the real effective exchange rate of January 1999 had been reversed, but, as noted above, costs must continue to fall in U.S. dollar terms for Uruguayan producers and exporters. Exporters made significant progress in reducing their costs and diversifying their markets, especially in the NAFTA countries and in Asia, while maintaining adequate volume growth in our traditional markets (albeit at lower prices). Also, as implied above, the structure of aggregate demand is changing, toward stronger net exports with more subdued domestic absorption, which is a more sustainable balance of output growth. Finally, the economic difficulties have stimulated an important debate about the need for structural reform in Uruguay to make the economy more agile, and better able to respond to external shocks, and the government has restarted the structural reform agenda. This debate is important as the government is not in a position to take unilateral decisions on structural reform in Uruguay's consensus-based culture, and it is working with Congress to implement appropriate reform measures in 2001, as described below.

4. With the exception of the fiscal deficit and public sector overall debt targets, the quantitative objectives agreed with the Fund through end-December 2000 were met. The consolidated public sector deficit reach 3.7 percent of GDP, compared with a program target of 1.8 percent. The larger-than-programmed deficit corresponds mainly to a drop in public sector revenue, and is broadly consistent with the operation of automatic stabilizers on the deficit, considering lower-than-expected output growth, and the particular weakness in domestic demand which, through consumption based taxation, is the largest revenue base in Uruguay. Notably, the public sector expenditure target under the program was met with a margin exceeding 3 percent, despite the adverse conditions, and the government continues to view the containment of public sector expenditure as the anchor of its medium-term fiscal strategy. The structural reform benchmarks under the program have been observed, except for the publication of the quarterly annotated reports of the public sector banks and enterprises; this benchmark was rescheduled for the end-March 2001 program period.

5. The government did not experience major difficulties in financing the larger deficit in 2000, and developments under the exchange rate regime and with interest rates were as envisaged in the program. The government placed three international bond issues (in June, September, and November) for a total of around US$640 million at an average spread of 290 basis points over corresponding U.S. Treasury bonds, and it placed the remaining financing requirement in the domestic market. In mid-2000, international credit rating agencies confirmed Uruguay's investment credit rating. The adjustable band exchange rate regime continued to work well in 2000. The band is 3 percent wide and currently is adjusted at an annual pace of 7.5 percent, slightly faster than inflation. The position of the exchange rate on average remained within the most appreciated half of the band. There were no substantial changes in interest rate policies of the BCU, which are largely subordinated to the exchange rate regime.

6. The external current account deficit is estimated to have widened slightly to 2.9 percent of GDP in 2000 (some US$600 million). Merchandise exports increased by around 3 percent in U.S. dollar terms (over 8 percent in volume); imports also increased by 3 percent in value, and dropped slightly in volume terms. The merchandise and services terms of trade were very weak, declining by 7.5 percent in the year, after declining by over 2 percent in 1999. Nonfactor services, especially tourism, held up well in 2000, in part as Argentines continued to come to Uruguay, and there were more visitors from Europe and the United States. In the capital account, net foreign direct investment was around US$200 million, with inflows mostly directed towards the hotel sector, retailing, and forestry. Portfolio inflows, dominated by the placement of government bonds abroad, remained sound, and there were renewed inflows of nonresident deposits into the Uruguayan banking system. The overall balance of payments registered a surplus in 2000, with net international reserves stronger than had been expected in the program.

II. The Economic Objectives for 2001

7. The Government's first priority is to foster a sustainable recovery in output while preserving low inflation. The resumption in output growth is needed to reduce unemployment. The policy measures will focus on assuring sound public sector finances to bolster national saving and limit indebtedness, and intensifying structural reform to help increase exports and private sector investment, which we believe need to be the engine of growth. The structural reforms are crucial to improve competitiveness of domestic production, and make the economy more responsive to foreign shocks, within the framework of the adjustable-band exchange rate system. These objectives will require cost containment, deregulation, and increased competition.

III. The Macroeconomic Framework

8. Emerging from the recession has taken longer than was envisaged. While at first the government anticipated an acceleration in growth in the second half of 2000, we now project that the rebound in output growth will gain strength towards the middle of 2001. The recovery of economic activity in Brazil has taken hold and, with a quarter of our merchandise exports sold in Brazil, this will begin to support growth in Uruguay as well. While Argentina is undergoing a difficult adjustment process, it has made substantial progress in recent time, and the prospects for the region as a whole are now becoming more favorable. We believe that international interest rates will decline somewhat further, while petroleum prices are expected to ease from their sharp runup to well above US$30 a barrel in 2000. At the same time, since costs in the economy are falling, and with ample capacity available for output growth, Uruguay could rebound quickly, especially if commodity prices turn somewhat more favorable. For now, the Government expects real GDP growth of around 2 percent in 2001, led by continued strength in the foreign balance and a gradual recovery in private investment and consumption, including with some recovery in the terms of trade. The rate of inflation is likely to be in a range of 3½–5½ percent, mainly because of slightly higher overall import prices, offset by the absence of domestic price pressures. Employment is expected to increase, but unemployment initially is expected to drop only moderately as participation rates typically also rebound with a recovery. With improved competitiveness and modest domestic absorption, the external current account deficit is projected to narrow to about 2½ percent of GDP.

IV. Economic Policies

9. The economic policies for 2001 are part of the medium-term effort to restore competitiveness and resume high output growth. The Government submitted to Congress a medium term budget for the Presidential term (2000-2005), based on expenditure restraint and which envisages achieving a turnaround in the public sector gross debt-GDP ratio by 2003. In December 2000, the budget was approved by Congress broadly in line with these deficit and debt objectives, but with slightly higher expenditures and taxes than those sought by the government.

10. The Government aims to cut the fiscal deficit from 3.7 percent of GDP in 2000 to 2.6 percent in 2001, equivalent to a reduction in the primary (noninterest) deficit of the public sector by about 1¼ percentage point of GDP. The indicative economic program for 2001 agreed with the Fund at the time of approval of the stand-by arrangement in May 2000, envisaged a deficit in 2001 of 1¼ percent of GDP. However, we believe that maintaining this target would not be realistic in view of the delayed recovery, as it would have required a large increase in taxation that could impede the resumption of growth. Instead, the government considers sustained expenditure moderation the key instrument of its medium term fiscal and competitiveness strategy, while tax increases should be minimized in view of the still fragile recovery in economic activity.

11. Noninterest expenditures are programmed to drop from 32.5 percent of GDP in 2000 to 31.9 percent in 2001. The general wage increase in the central government, already announced in January, was 3 percent. However, during the budget negotiations in Congress, it was also agreed that members of the judiciary, university professors, and teachers will receive a complementary one-time salary adjustment in 2001 equivalent to about 2½ percent of the total wage bill. These measures combined, and a small drop in public sector employment due to retirements, are projected to permit a small decline in the public sector wage bill in relation to GDP. More significant savings are expected from a drop in social security expenditure from 16.8 percent of GDP in 2000 to 15.6 percent in 2001. This reflects, on one hand, the gradual moderation in labor costs in the economy, as social security benefits are indexed to average private and public sector wages, and, on the other hand, the effects of the social security reform as the number of beneficiaries in the public system has recently started falling at a rate of 0.7 percent a year. Capital outlays are programmed to increase from their depressed level in 2000. Most of the expenditure adjustments are expected to take place in the central government, whereas local governments, which have limited access to financing, are curtailing their own expenditures. Their taxes have shrunk in the recession of 1999-2000, but local governments will receive 0.2 percentage points of GDP in additional transfers in 2001 in the context of political commitments to support greater decentralization which recently went into effect (see ¶13).

12. Moderating labor costs is essential to help bolster competitiveness and improve prospects for employment growth. The public sector indexation law that was adopted in Congress at end–1997 stipulates that if 12-month inflation remains below 10 percent since the last public sector general wage adjustment, the government can increase public sector wages only once a year. As this condition has been met, the general wage increase in government will be limited to the one granted in January, noted above. Private sector wages dropped by around 2 percent in real terms in 2000, and some contracts even had small reductions in nominal wages to preserve jobs. Private sector wages are expected to increase by around 3 percent in 2001.

13. Consolidated public sector revenues are projected to increase from 31.3 percent of GDP in 2000 to 31.9 percent of GDP in 2001. The largest component of this increase, 0.5 percentage points of GDP, is expected from the recovery of the operating result of the public enterprises, which had a difficult year in 2000. Input costs are falling as the total wage costs in real terms are declining and petroleum import prices are expected to be lower on average compared with 2000. The average tariffs of the public enterprises will be adjusted in line with overall inflation. Other revenue gains are small in proportion: receipts from import taxes are expected to increase with the rebound in imports, and the government has removed a VAT exemption for private healthcare providers (expected to yield 0.1 percentage point of GDP each). Also, as agreed with Congress, the mandated increase in transfers to local governments will be financed with an increase in gasoline taxes, equivalent to 0.2 percentage points of GDP. Employer social security contributions were lowered slightly to help reduce labor costs and promote employment.

14. Monetary policy is subordinated to the exchange rate regime. During 2001, currency in circulation is projected to rise about in line with nominal GDP, while the BCU's net international reserves are expected to remain virtually unchanged from their relatively high level at end-2000. Broad money is envisaged to increase by 8-10 percent, reflecting the growth in deposits, and with nearly all of the public sector deficit financed abroad (see below), this will permit banking system credit to the private sector to expand by around 6 percent in real terms.

15. The government is taking steps to improve the efficiency of the financial system. The emphasis is on improving the performance of the public sector institutions. In the banking area, the Bank of the Republic (BROU) is receiving an independent external audit and analysis of its operations. The preliminary conclusions of these audits point out the need for additional reforms in the computer systems; to update the accounting systems in some parts of the bank; to fully implement the credit manuals, and to make more transparent the costs for the bank in its functions as a development institution. Management is already following up on these issues, and working with external experts to improve the efficiency of the bank. The external audit is expected to be completed by March 2001.

16. The National Mortgage Bank (BHU) also is receiving an independent external audit and analysis of its operations. So far, the preliminary results of the audit suggest a need to obtain an assessment of the properties on the books of the bank and for which mortgages have been extended, as existing assessments are out of date. The bank is taking measures to bolster its ongoing operations. Most importantly, it is reducing its balance sheet currency mismatch. Liabilities of the bank are denominated in U.S. dollars, but most mortgages are denominated in Adjustable Units (UR) which is an index linked to average wages in the economy. As wages have increased somewhat below the pace of depreciation of the exchange rate recently, the bank is experiencing valuation losses on its mortgage portfolio. To help limit these losses, the bank is extending new mortgages denominated in U.S. dollars only. Lastly, the bank is establishing reserve requirements at the BCU, as is required of any other bank in Uruguay. The State Insurance Bank (BSE) is being put on a more level playing field with private sector competitors in the insurance industry as taxes on its activities and income are being equalized to that of private sector insurance companies. Finally, the supervisory office of the BCU has strengthened its on-site presence in the BROU and the BHU, and has started publishing the individual balance sheet and profit and loss positions of these banks (as well as for all other banks in the system) on the BCU internet page, and is working with banks to shorten the time lag in which this information is made available. To gain further assistance with these efforts, the government has request a Financial Sector Assessment Program (FSAP) for the next Article IV consultation with the Fund.

17. The government will continue to adjust the exchange rate band at an annual rate of 7.5 percent. There is no wage pressure in the economy and supply constraints are virtually absent, while the depreciation of the currency just in excess of domestic inflation will support the export oriented growth model. There may be some further pass-through of oil costs in the near term but, on balance, the government does not believe that inflation pressures will be strong. Confidence in the adjustable exchange rate band mechanism has been strong in Uruguay, with the peso fluctuating close to the most appreciated limit of the band, and international reserves steadily growing in recent years. As the level of economic activity regains strength and unemployment eases, the government intends to resume slowing the pace of adjustment of the band, and complete the transition of inflation down to industrial country levels.

18. The gross borrowing needs of the government for 2001 are projected to be around US$1,400 million, and the net financing needs at US$530 million. The government envisages placing US$700 million (net) in long-term foreign currency denominated bonds (most of it abroad). These placements would permit some amortization of domestic bank debt, and an early repurchase of some medium-term notes, which is desirable to ease a projected bunching of amortizations of these notes falling due in 2003. The average maturity of the bonded debt in Uruguay will remain over seven years, and the government has little short-term debt.

19. Structural reforms are important to help increase private sector investment in the economy, and to improve productivity and competitiveness. The guiding principle is to place public and private enterprises on a level playing field, in a demonopolized, appropriately regulated, and transparent market. In 2000, the Government already has expanded private sector concessions in water and sanitation works; created a regulatory agency to implement the new legislation for the electricity market (with free competition in electricity generation); cleared for auction two telecommunications frequencies; renounced existing contracts in fuels distribution so that this sector can now be opened up to competition; obtained legal authorization to open up the national railway to private sector participation, and to incorporate the Montevideo container wharf as a sociedad anónima (SA) under private sector law; and eliminated a bias in pension funds against investments in private sector securities. In 2001, the government has already obtained legislative approval for a new regulatory agency for telecommunications and mail services, and it intends to seek equivalent legislative approval to establish a regulatory agency for the other public sector utilities. Also, in January, the market for cable television was opened up to foreign investment. Moreover, the government will eliminate the monopoly for ANCAP on imports and sales of asphalt and its by-products; eliminate the monopoly for the BSE on insurance needs for the government, the public enterprises, and the public sector banks; eliminate the monopoly status on imports and commercialization of natural gas; open up competition in the telecommunications sector for international long distance service, cellular telephony, and all telecommunications services offered through new technology (not including basic domestic fixed-line services which remain the monopoly of ANTEL); open up for concessions the management of state-owned hospitals; allow the establishment of private ports; and a number of smaller deregulation measures intended to cut red tape and bureaucracy in the economy. Moreover, the government intends to introduce a bill in Congress for the removal of the monopoly on imports and sales of petroleum and its derivatives, and of the refining of petroleum. Lastly, the government does not believe that it can finish all the requisite legislative work for submitting the reform of the special pension funds to Congress by March, 2001, so this benchmark was delayed slightly to end-June 2001.

20. The government intends to maintain Uruguay's exchange rate system free of restrictions on payments and transfers for current international transactions. Uruguay has implemented on schedule all customs tariff reductions as agreed under the Mercosur convention, and the government has lowered on January 1, 2001 the surcharge on the common external tariff, as agreed with Mercosur partners. The "special sugar regime" that is allowed for countries under Mercosur, expired at the end of December 2000, implying the elimination of minimum reference prices and quantitative restrictions, and a significant reduction in protectionism. The proposed common external Mercosur tariff for sugar is 35 percent, and remaining (quantitative) trade restrictions within the Mercosur would be phased out in coming years.

22. Improving the accuracy, timeliness, and comprehensiveness of statistical data on the economy is an ongoing effort. A project to revise and expand national accounts statistics is on track and is expected to be finalized in 2001 and, together with other efforts, Uruguay intends to subscribe to the Fund's SDDS by the end of the year. Much progress has already been achieved with data dissemination on the internet, and the government remains committed to providing additional timely information on the operation of the government, and its financial and nonfinancial enterprises, to the public, as described in the attached Annex of structural benchmarks.

23. The economic program for 2001 establishes quantitative performance criteria for end-March and end-June, with indicative quantitative targets for the second half of the year. The region remains subject to economic risks, and it is difficult to project how quickly the level of economic activity will rebound. The government proposes to consult with the Fund and establish the quantitative performance criteria for the third and fourth quarter of 2001 on the occasion of the second review of the program in June/July 2001.


Uruguay: Quantitative Limits and Targets for the 2000-01 Economic Program 1 2


Dec. 31 2000

Jan-Mar 2001

Jan-Jun 2001

Jan-Sep 2001

Jan-Dec 2001

(In millions of Uruguayan pesos)


1. Combined public sector balance (floor)






2. General government expenditure (ceiling)






3. Change in the net domestic assets of the BCU (ceiling)






(In millions of U.S. dollars)


4. Net international reserves of the BCU
(-decrease) (floor)






(Stock of debt at the end of the period; in millions of U.S. dollars)


5. Combined public sector debt (ceiling)

    a. All maturities






    b. Less than one year






Sources: Ministry of Economy and Finance, and Central Bank of Uruguay.


1 As defined in the Technical Memorandum of Understanding.
2 Targets for Sept. 30 and Dec. 31 2001 are indicative at present, to be substituted by performance criteria during the second review of the program expected for June/July 2001.


Structural Reform Benchmarks

Before end-March 2001

  1. Publish quarterly reports for the three month period ending December 31, 2000, for the public sector financial and nonfinancial enterprises (BROU, BHU, BSE, ANCAP, UTE, ANTEL, OSE, AFE, ANP). The reports to include annotated summary tables of the results of operations, cash flow, and balance sheet. Subsequent quarterly reports to be published with a lag not exceeding 10 weeks from the end of the relevant calendar quarter.

  2. Complete independent external audit of BROU, BHU, and BSE.

  3. Complete independent external audit of ANCAP, UTE, ANTEL, OSE, AFE, and ANP.

    Before end-June 2001

  4. Submit law to Congress to reform special pension funds (Cajas Especiales) for the banking sector, university professionals, notaries, police, and the military.

  5. Finish the study on quasi-fiscal operations of all public sector financial institutions and other entities. The result of this study to be discussed during the second review of the program.

  6. Publish annual reports of BROU, BHU, BSE, ANCAP, UTE, ANTEL, OSE, AFE, and ANP, approved by independent external auditors. The reports to include summary tables of results of operations, cash flow, and balance sheet. Subsequent audited annual reports to be published with a lag not exceeding four months.

    Before end-September 2001

  7. All banks to obtain and publish a corporate credit rating, or place debentures in the capital market equivalent to at least 2 percent of their deposit base.

    Before end-December 2001

  8. Submit to Congress legislation to eliminate the petroleum import monopoly.

  9. Submit to Congress legislation to eliminate the petroleum refining monopoly

Technical Memorandum of Understanding

This memorandum presents a detailed definition of the variables included in the quantitative performance criteria annexed to the Policy Memorandum.

1. Cumulative balance of the Combined Public Sector. The Combined Public Sector comprises the Central Administration (including as defined in "Article 220" of the Constitution, Salto Grande, and the funds managed directly in the ministries (Fondos de Libre Disponibilidad), the social security system (Banco de Previsión Social), the local governments (Intendencias), the public enterprises (ANCAP, ANTEL, UTE, OSE, AFE, ANP, INC and ANCO), and the quasi-fiscal balance of the Central Bank (BCU). The public sector balance will be measured from below the line on the basis of information provided by the BCU on: (a) combined public sector debt (defined below), including all short-term debt, in foreign currency and pesos; (b) bank borrowing and bank deposits in foreign currency and pesos; and (c) net asset transactions of the combined public sector. The result of the BCU is defined as interest earnings on gross international reserves, as defined below, and on domestic assets minus operating expenses and interest paid on domestic and foreign debt administered by the BCU. The limit on the balance of the combined public sector will be adjusted downward (upward), i.e., the deficit would be allowed to widen (narrow), by the amount that the actual social security contributions to the private pension system exceeds (falls short) the projected amount in the program (which is Ur$2,741 million).

2. Cumulative ceiling on general government expenditure. This ceiling applies to total (current and capital) noninterest expenditure of the central administration and social security system, excluding outlays on pensions and internal transfers. The limit will be adjusted upward (downward) by the amount that the actual social security contributions transferred to the private pension system exceeds (falls short) the projected amount in the program.

3. Cumulative changes in net domestic assets (NDA) of the BCU. NDA of the BCU is defined as the difference between currency in circulation (i.e., currency held outside banks) and net international reserves (NIR) of the BCU as defined in 4. below. The flow of NIR will be valued at the average exchange rate projected in the program for the corresponding quarter.

4. Cumulative changes in net international reserves (NIR) of the BCU. NIR is defined as the difference between the gross international reserves and BCU reserve liabilities. Gross international reserves include all foreign exchange assets that are in the direct effective control of the BCU and are readily available for such purposes of the BCU as intervention or the direct financing of payment imbalances. Such assets may be in any of the following forms, provided that they meet the test of effective control and ready availability for use: currency, bank deposits in nonresident institutions and government securities and other bonds and notes issued by non-residents (with a rating not below "A" in the classification of Fitch IBCA and Standard and Poor's or "A2" in the classification of Moody's). In addition, holdings of SDRs or of monetary gold would be included under gross reserves assets (provided they meet the test of effective control and ready availability of use) as would the reserve position in the IMF.

Excluded from the definition of gross international reserves are all foreign currency claims arising from off-balance sheet transactions (such as derivatives instruments), claims on residents, capital subscriptions in international financial institutions, any assets in nonconvertible currencies, claims on any nonresident Uruguay-owned institutions, or any amounts (in all components of assets, including gold) that have been pledged in a direct or contingent way.

Gross reserve liabilities include all foreign currency-denominated liabilities of the BCU with original maturity of one year or less to residents and nonresidents, the use of Fund resources, any net position on foreign exchange derivatives with both residents and nonresidents undertaken directly by the BCU or by other financial institutions on behalf of the BCU. For the purpose of the NIR calculation, (a) the gold holdings of the BCU will be valued at the accounting rate of US$42 per troy ounce; (b) liabilities to the IMF will be valued at US$/SDR rate of December 31, 2000; (c) gains or losses from gold-swaps and other operations will be excluded; and (d) non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S. dollars at the market exchange rates of the respective currencies as of December 31, 2000. Regarding valuation effects for NIR operations during the year, such flows will be valued at the exchange rate at which the operation took place.

5. Combined Public Sector stock of debt. This refers to (a) the outstanding stock of debt in foreign currency owed or guaranteed by the combined public sector; and (b) debt in URs ("Unidades Reajustables").1 Debt will be measured on a disbursement basis; it excludes nonresident deposits and other short-term liabilities of the BROU and the BHU. Debt in the form of leases will be calculated as the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.2 The overall limit will be adjusted upward (downward) by (1) the upward (downward) revisions made to the actual debt stock at end-2000; (2) the difference between the actual and projected amount of social security contributions that are transferred to private pension funds;  (3) the overperformance with respect to the targets on the BCU's net international reserves up to a limit of US$250 million; (4) any upward (downward) changes in the amount of export prefinancing in the BCU in relation to the level of December 31, 2000 (also for short-term debt); and (5) by any amount equivalent to the increase (decrease) in the sum of free and required foreign currency deposits up to US$200 million of the BROU, BHU, private banks, AFAPs and investment funds, in the BCU from their level of December 31, 2000. Certificates of deposit issued by the BCU to banks and/or their substitute Treasury instrument (treasury bills of maturity longer than one year) are included in medium and long-term debt.

1 The term "debt" has the meaning set forth in point No.9 of the Fund's Guidelines on Performance Criteria with Respect to Foreign Debt (Decision of August 24,2000).
2 All lease contracts of ANTEL with foreign equipment providers (Ericsson, NEC) signed prior to end-December 2000 are expensed under goods and services as rental outlays and do not involve a residual financial claim or transfer of property at the end of the lease term. Therefore, these lease contracts are excluded from the calculation of the public sector debt.