- The Washington Times - Friday, February 21, 2003

RIO DE JANEIRO, Brazil, Feb. 21 (UPI) — The International Monetary Fund said Friday that it reached agreement with Uruguayan authorities on an economic program designed to pull the country back from the brink of bankruptcy.

While an IMF statement didn't give any indication of new monetary aid for Uruguay, analysts say Friday's news is likely to lead to a resumption of aid disbursements in a month's time.

"This program defines a fiscal and financing framework to pave the way for medium-term economic sustainability and growth," Anoop Singh, director of the IMF's Western Hemisphere department, said in a statement.

"The program will also carry forward bank reforms aimed at strengthening the domestic banking system. The authorities are finalizing a letter of intent which they expect to complete in the coming days."

The statement provided no details on what economic targets Uruguay and the IMF had agreed upon.

Newspapers in Uruguay, though, reported on Friday that the new program will call for a fiscal deficit of 3.1 percent of the gross domestic product. The agreement also envisions a primary budget surplus of 3.2 percent of the GDP and annual inflation of 27 percent.

The newspaper El Observador — citing unidentified members of the Uruguayan negotiating team — also indicated that the IMF will extend its agreement with Uruguay by one year to 2005.

Uruguay has been cut off from its IMF loan disbursements since last October.

The country has teetered near default on its $11.4 billion debt — which is about 90 percent of its GDP — for more than one year.

The collapse in neighboring Argentina in December 2001 arguably hit Uruguay harder than any other country.

After Argentine authorities locked down banking accounts in their own country, Argentines with deposits in Uruguay sparked a run on banks there.

Last March the IMF approved a $2.9 billion credit line for Uruguay.

But only seven months later the fund froze its disbursements after a review of Uruguay's finances didn't pass muster with IMF officials.

Uruguay has missed out on about $380 million since its loan disbursements were halted.

It was just two weeks ago that Uruguay came through with a $151.7 million payment to government bondholders, which went a long way in helping the country return to the good graces of the IMF.

This week, Uruguayan officials have been in Washington, pressing the IMF for the badly needed resumption of aid.

In addition to the problem of continued stagnation in Latin America's economies, Uruguay has about $2 billion in bond payments coming due this year.

It's thought that any agreement with the IMF will also require Uruguay to restructure its debt profile to ease short-term pressures.

Add to debt woes the threat of war in Iraq and growing investor risk aversion to emerging economies, and it becomes clear how dependent Uruguay will be in the coming year on multilateral aid.

"We are confident that the envisaged economic program will be supported by the international community and build a strong foundation for Uruguay to return to sustained growth. We plan for board consideration of the program in mid-March," Singh said.

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