- The Washington Times - Thursday, August 1, 2002

MONTEVIDEO, Uruguay (AP) Uruguay will keep its banks closed through tomorrow in a move to halt mass withdrawals by savers caught in the deepening economic crisis in this small South American nation.

At a news conference yesterday, Economy Minister Alejandro Atchugarry announced the extension of the so-called banking holiday that marked a deterioration in the country's economic situation.

"We are conscious of the difficulties that we are dealing with, but we are a united country and have a society ready to resolve its problems," Mr. Atchugarry said.

He said he would ask Congress to pass laws to strengthen the banking system. He made no mention of an extended freeze on bank deposits beyond tomorrow.

Neighboring Argentina, whose economic troubles are closely linked to those in Uruguay, still has a partial freeze on accounts after depositors drained billions of dollars from banks earlier this year.

Speaking with reporters, Mr. Atchugarry said Uruguayans could take hope in "positive signals" the country received from the Bush administration. The Treasury Department on Tuesday backed Uruguay's efforts to win further aid from the International Monetary Fund.

"Uruguay has been a strong performer in Latin America and deserves the ongoing support of the international financial community for its commitment to sound economic policy," the Treasury Department said.

Uruguayan officials are in Washington negotiating with the IMF. Local reports have suggested that $1.5 billion could be released to Uruguay be lenders in coming days.

The latest crisis exploded Tuesday when Uruguay's government closed its banks after massive withdrawals in recent weeks. Long lines formed outside the banks Tuesday as people sought to remove money from cash machines before they were shut down.

Under the strain of the crisis in Argentina, the amount of capital in many Uruguayan banks has fallen dramatically in recent weeks, with the total level of deposits dropping 40 percent this year and leaving many banks struggling to survive.

The government released a statement saying it had declared the closure after suspending the activities of Banco Montevideo and Caja Obrera for "the non-fulfillment of regulations."

Mr. Atchugarry later said the government had suspended the two banks because it was not prepared to issue further loans to the institutions.

Uruguay's banking system has been shaken by the economic crisis and financial-system meltdown in neighboring Argentina, which has made savers jittery and made it hard for the country to raise credit. The country also is laboring through its fourth year of recession.

At the end of 2001, Uruguay's banks had approximately $13 billion in deposits, but that figure is now close to $8.8 billion. Meanwhile, the Central Bank's dollar reserves have fallen from $3 billion to $622 million.

Uruguay's peso, which was valued at 17 to the dollar a month ago, is trading at about 28 to the dollar.

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