Abstract
This paper examines Uruguay’s Fourth Review Under the Stand-By Arrangement and Requests for Modification of the Arrangement. The macroeconomic framework is broadly on track, but progress with structural reform has lagged. With regard to the quantitative performance criteria, there was a small deviation from the target on the combined public sector primary balance. The restructuring of the public banks and the disposal of assets of liquidated banks are taking longer than expected. The authorities have reaffirmed their commitment to the primary surplus targets for 2004 and beyond.
1. Since the issuance of the staff report, additional information on recent developments and policy measures has become available. This information does not alter the thrust of the staff’s appraisal.
2. Prior actions and structural performance criteria. The three prior actions for completing the fourth review have been observed:
The authorities have selected a general manager of the fiduciary trust to which BROU’s nonperforming loans have been transferred.
The central government has issued an unconditioned guarantee for the notes to be issued by the fiduciary trust in exchange for the loans transferred from BROU.
On February 13, the authorities solicited bids for outsourcing the assets of the liquidated banks, with the opening of bids scheduled for March 26. Under this schedule, the authorities will not be able to observe the end-February structural performance criterion on the selection of the winning bid for outsourcing of assets of liquidated banks. In the attached letter, they request that the date for observance of this structural performance criterion be changed to end-March 2004. Staff supports the request, given the brief delay and the authorities’ overall commitment to banking reform. A revised proposed decision is attached.
3. Quantitative performance criteria. Available data for end-December indicate that the quantitative performance criterion on general government noninterest expenditure was observed with a small margin. However, because these data are still preliminary, the authorities maintain their request for a waiver of applicability.
4. Economic and financial developments. In December, output in the manufacturing industry rose 37 percent in real terms (year-on-year). The index of leading indicators of activity compiled by a local think tank (CERES) rose by 1.4 percent (seasonally adjusted, month-on-month), suggesting that growth is continuing in early 2004. Inflation remained broadly in line with program projections in January; a 2.2 percent increase in the CPI (m/m) reflected mostly adjustments in the tariffs charged by public utilities, with the 12-month rate rising only slightly, to 10.5 percent. Deposits of the non-financial private sector in the Uruguayan banking sector have also continued to recover in January (an increase of US$168 million, or 2.5 percent).
5. Subscription to the SDDS. On February 12, the authorities formalized their subscription to the SDDS. An SDDS website for Uruguay is now in operation.
Montevideo, Uruguay
February 17, 2004
Dear Mr. Köhler:
As anticipated in our letter of February 6, 2004, the call for bids for the outsourcing of assets of liquidated banks, which was a prior action under the program, was issued last week. However, delays were registered in assembling the required bidding information, and bidders will need sufficient time to conduct due diligence prior to the auction. As a consequence, it will no longer be possible to select the winning bid at end-February as originally contemplated. We therefore request that the end-February structural performance criterion on selecting a winning bid for outsourcing assets of liquidated banks be instead established as a performance criterion for end-March 2004. We remain fully committed to the banking strategy set forth in our letter of February 6, 2004.
Sincerely yours,
| /s/ | /s/ |
| Julio de Brun | Isaac Alfie |
| President Central Bank of Uruguay | Minister of Economy and Finance Oriental Republic of Uruguay |
| /s/ | /s/ |
| Julio de Brun | Isaac Alfie |
| President Central Bank of Uruguay | Minister of Economy and Finance Oriental Republic of Uruguay |
Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, D.C. 20431