Uruguay gets $1.5 billion emergency loan from the United States

Monday, August 5th 2002, 12:00 am
By: News On 6

MONTEVIDEO, Uruguay (AP) _ Uruguay received an electronic transfer Monday of $1.5 billion from the U.S. Federal Reserve as embattled banks began reopening, nearly a week after they closed amid panicked withdrawals by depositors.

U.S. Treasury Secretary Paul O'Neill, who arrived in Brazil on Sunday for a regional tour, said the $1.5 billion temporary loan was in recognition of the strong economic program Uruguay was putting in place. All but a few of the weakest financial institutions were to reopen Monday.

``We are confident that this enhanced program will help Uruguay address the intense external pressures it has faced in recent months,'' said O'Neill, whose four-day trip includes stops in Uruguay and Argentina.

In Montevideo, an official in the office of U.S. Ambassador Martin Silverstein confirmed that the electronic transfer was made. The official spoke on condition of anonymity.

Although banks in Uruguay traditionally open around midday, the first institutions began earlier than usual in anticipation of a flood of customers after nearly a weeklong shutdown.

But Aldo Reyes, a marketing executive at Banco ACAC, said the private bank opened uneventfully at midmorning. ``We are open and the first hour of business was quite uneventful,'' said Reyes. ``In fact some of our first operations were to open new accounts.''

The U.S. assistance is to be repaid within days once Uruguay receives a new loan package from the International Monetary Fund, the World Bank and the Inter-American Development Bank.

The IMF issued a joint statement with the other two institutions late Sunday announcing the additional support after Uruguay's Congress enacted emergency legislation this weekend to shore up the banking sector.

``I am impressed by the authorities' resolve to deal with a very difficult situation,'' said IMF managing director Horst Koehler. ``We see a clear basis for confidence to return.''

The lynchpin of the Uruguayan plan is a law passed on Sunday to block depositors' access to $2.2 billion in long-term deposits in the country's two state banks for the next three years.

The accounts _ similar to certificates of deposit in the United States _ require depositors not to withdraw funds for an extended period in exchange for higher rates of interest. They would continue to earn interest during the freeze.

``This will be difficult medicine, but it's the only possible solution,'' Economy Minister Alejandro Atchugarry said.

Checking and savings accounts will not be affected by the measure, and neither will deposits at private banks.

Meanwhile, many banks were making plans to open for extended hours Monday to handle a deluge of customers who have been unable to transact routine business since last Tuesday.

The crisis began building in recent weeks as millions of dollars in withdrawals fled Uruguay's banks as depositors panicked in the face of the worst recession in history. Uruguayan reserves totaling $3 billion in 2001 plunged to $655 million as fearful depositors yanked their funds.

The four-year economic tailspin has been exacerbated by the unraveling of the Argentine economy. It exploded into a crisis last week that saw a large-scale labor protests and scattered supermarket looting.