Uruguay Debt Crisis - South America Crumbling

Posted By: Rosalinda
Date: Saturday, 11 May 2002, 12:40 p.m.


URUGUAY FACES DEBT CRISIS, SOCIAL CONFLICT:
a case of another "model" nation crumbling.
[Source: New York Times, May 8]

On May 6, Secretary of State Colin Powell and Assistant Secretary of State Otto Reich, at the Council of Americas annual convention, held up Mexico and Uruguay as among the short-list of Ibero-American "success" stories which prove that the IMF "reforms" work. Bad timing. On May 3, Moody's Investors Service joined Standard and Poors and Fitch in lowering Uruguay's investment-grade rating to junk status, saying the country was "increasingly vulnerable to macroeconomic shocks emanating from Argnatina."

In the face of the Argentine devaluation, the Uruguayan government is devaluing its currency; last week, it predicted the Uruguayan peso would lose 2.4% of its value a month, for the rest of 2002. Given that most of Uruguay's debt is dollar-denominated, this blows out their ability to pay their debt -- which already is greater than 60% of GDP.

The government just cut the budget again, and hopes to increase tax revenue, but bankers say the only way they can meet debt payments, is if they sell off the state-run telecommunications and energy industries, and infrastructure. In this small country of 3.3 million people, where one in six people work for the government, this is a formula for a social explosion. Not to mention the status of the national bank system, whose deposits are being drained, as wealthy Argentines who can't get their money out of Argentine banks, withdraw their money from their Uruguayan accounts. [ggs]

[Source: Clarin, 5/5/02.
Column by Daniel Muchnik, "The Poverty- Making Machine," Buenos Aires]

THE IMF PROGRAM FOR ARGENTINA IS A "POVERTY-MAKNG MACHINE," writes {Clarin's} economics editor Daniel Muchnik. Instead of pulling Argentina out of the disaster, it has forced 300,000 people a month to enter the ranks of the poor. Treasury Secretary Paul O'Neill says "The world is ready to help Argentina" when "it has reached the limits of what is tolerable."

It appears, Muchnik angrily notes, "that 15 million poor aren't yet sufficient reason to help a devastated nation." So, "will there be international aid with 20 million poor, or will `critical mass' be reached at 25 million? If these are our friends, who needs enemies?" The real issue here, Muchnik states, is that O'Neill is playing innocent, when the IMF and Treasury bear the primary responsibility for Argentina's crisis.... Our debt moratorium wasn't an act of independence, but a consequence of the cessation of payments imposed by the Fund's policies. He concludes: "Has Argentina resigned itself to reaching `the limits of what is tolerable' as O'Neill puts it? Argentina's fate as a nation hangs in the balance." [a2193arg001; crr]

[Source: Bloomberg, 5/7/02. Buenos Aires]

FOREIGN BANKS PULLING OUT OF ARGENTINA,
due to government failure to create