STRATEGIC PARTNERS
August 1, 2002
MONTEVIDEO, Uruguay -- Uruguayans rushed to ATMs after the government on July 30 declared a bank holiday then extended it through Aug. 2, as withdrawals of pesos and dollars by nervous depositors accelerated.
The government further exacerbated Uruguayans' fears by closing ATMs for a day and then limiting withdrawals to pesos.
Uruguay has been rocked by a bank run, a dive in consumer spending and the ripple effects of Argentina's ongoing economic crisis, according to a Reuters report.
Argentines have long stashed money in banks in Uruguay as a safeguard against banking problems at home. But with a savings freeze on since December in Argentina, many Argentine depositors emptied their Uruguayan accounts --- where 33 percent of all savings have been withdrawn so far this year -- at an accelerating pace.
The government said it ordered the bank holiday because of the Central Bank's decision to suspend operations of Banco Montevideo Caja Obrera, which was held by Argentina-based Grupo Velox before the government seized control.
Paraguay's Banco Aleman, also controlled by Argentina's Grupo Velox, was also hit by a fall in deposits.
Most recently, concerns a leftist could win Brazil's presidency in October and push the regional giant to default on its $250 billion public debt have added to Uruguay's concerns.
The halt to most transactions pushed Uruguay's peso down 14 percent on July 30. The currency has recovered around 10 percent and is now 27 to the dollar at exchange houses. It has lost half its value in dollar terms since the government allowed it to float freely in June.
The Uruguay Central Bank's international reserves have fallen 79 percent since January.
Many workers staged a four-hour general strike on Aug. 1 to demand wage increases and public works projects, and about 80 looters tore down shutters on three corner stores in a poor district northwest of the capital and took alcohol, shampoo and some food, witnesses told Reuters.
A United Nations agency said Uruguay's economy would shrink 5 percent this year while U.S. Treasury Secretary Paul O'Neill said the country deserved support.
Vice President Luis Hierro said on Aug. 1 that hhe hoped Congress would pass a bill backed by the International Monetary Fund that is designed to shore up the troubled banking system before banks open on Aug. 5.
Two rating agencies have downgraded banks operating in Uruguay to reflect the growing possibilities that deposit restrictions could be put in place system-wide. Fitch cut its sovereign rating for Uruguay, saying reserves were at "precarious" levels.
