Uruguay
Sixth Review Under the Stand-By Arrangement and Requests for Modification of the Arrangement, Waiver of Nonobservance and Applicability of Performance Criteria, and Extension of Repurchase Expectations in the Credit Tranches—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director
Author:
International Monetary Fund
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Publication Date:
14 Jan 2005
eISBN:
9781451947625
Language:
English
Keywords:
ISCR; CR; SDR; central bank; audits of the financial statements; authority; credit file; finances; short-term debt; dollar deposit; asset recovery; cash flow; nonresident deposit
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This paper examines Uruguay’s Sixth Review Under the Stand-By Arrangement and Requests for Modification of the Arrangement. The macroeconomic framework is on track, but progress with structural reform remains uneven. Fiscal performance has been better than programmed, reflecting buoyant revenues. The monetary and balance-of-payments targets of the program are being met as well. GDP growth is now forecast at 11 percent in 2004. The restructuring of the public banks and disposal of assets in the bank liquidation funds are moving forward.

Abstract

This paper examines Uruguay’s Sixth Review Under the Stand-By Arrangement and Requests for Modification of the Arrangement. The macroeconomic framework is on track, but progress with structural reform remains uneven. Fiscal performance has been better than programmed, reflecting buoyant revenues. The monetary and balance-of-payments targets of the program are being met as well. GDP growth is now forecast at 11 percent in 2004. The restructuring of the public banks and disposal of assets in the bank liquidation funds are moving forward.

I. Background

Political Situation: October 31 Presidential and Congressional Elections

1. The candidate of the left-leaning Frente Amplio-led coalition (FA), Dr. Tabaré Vazquez, was elected resident in the first election round on October 31. Dr. Vazquez’s policy focus during the campaign was on poverty alleviation, income redistribution, and state support to promote employment and strategic sectors; throughout the campaign, he also stressed the need to maintain macroeconomic stability and honor the nations’ debt commitments. The president-elect has announced that Sen. Danilo Astori would head his economic team; Sen. Astori is well-respected by markets. In congress, the FA will hold 52 seats (out of 99) in the lower house and 17 seats (out of 31) in the senate. Since the elections, sovereign spreads have continued to decline and the exchange rate has been relatively stable. The new government will take office on March 1, 2005; the current Stand-By Arrangement (SBA) expires on March 31, 2005.1

Developments under the program

The economic recovery is robust, despite the rise in oil prices, while inflation is running within the target range of 7–9 percent.

  • Growth and employment. Real GDP grew 13½ percent (y/y) in the first half of the year, with continued strength in leading indicators pointing to robust growth in the second half as well. The recovery has been broad based, with strong growth in consumption, investment, and exports. Unemployment stood at 13.3 percent in September; some 3½-percentage points lower than a year ago.

  • Wages and inflation. Wage pressures remain modest, with real wages in the private sector down slightly in the year ending September 2004. Inflation was 8.7 percent at end-October (within the central bank’s target range of 7–9 percent), despite higher petroleum and energy prices.

  • External current account. Both export and import growth has been strong throughout the year, and the external current account is expected to post a modest deficit in 2004.

uA01fig01

GDP and Unemployment

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

uA01fig02

Inflation and real private wage growth

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Uruguay: Selected Macroeconomic Indicators

(12-month percentage change, unless otherwise indicated)

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Sources: BCU, and Fund staff estimates.

3. Financial indicators continue to improve.

  • Exchange rate. The peso was fairly steady in the year through August, but since then it has appreciated by about 7 percent against the U.S. dollar. Despite this appreciation, Uruguay’s real effective exchange rate remains some 30 percent more depreciated than its average in 2001 (before the financial crisis), and 11 percent more depreciated than its average during the 1990s.

uA01fig03

Uruguay: Real Effective and Real Bilateral Exchange Rates

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Source: INS and Fund staff estimates.

  • International reserves. Gross international reserves of the central bank have risen during the year and now stand above US$2 billion. Gross reserves of the banking system cover 60 percent of short-term debt and dollar deposits, a lower rate of coverage than in most dollarized economies in the region.

Comparisons of Banking System Reserve Adequacy Indicators

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  • Debt and sovereign spreads. Sovereign spreads have been falling since May, in line with regional trends, and were under 500 bps at end-October. The stock of short-term public debt has declined in recent months, owing to the amortization of peso- denominated T-bills, which have only been partially replaced by dollar- denominated T-bills. This has helped improve the maturity profile of short-term debt, since dollar-denominated T-bills have a weighted average residual maturity of ten months compared with one month for peso-denominated T-bills.

uA01fig04

Sovereign risk (EMBIG Global)

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

  • Private sector deposits in the banking system continue to recover. Dollar deposits have risen during the year; however, there has been some shift toward shorter maturities, and the level of dollarization remains very high (with over 90 percent of deposits in dollars). Bank credit has yet to revive, as banks continue to focus on cleaning their balance sheets.

Uruguay - Nonfinancial Private Sector Deposits

(Flows in millions of each currency)

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Excludes Banco Galicia Uruguay.

The decline in time deposits during 2003 and 2004 is influenced by the return of reprogrammed deposits at BROU and the amortization of CDs at Nuevo Banco Comercial.

During September Nuevo Banco Comercial booked the exercise of its option to put back NPLs to the bank liquidation funds. This operation led to a decline in foreign currency time deposits to residents of US$ 102 million.

  • Domestic interest rates. Rates on peso- and dollar-denominated Treasury- and central bank-bills have increased somewhat since end-2003, mainly reflecting the increase in U.S. interest rates and the relatively tight monetary policy stance. Interest rates on 6-month peso-denominated T-bills now stand at 18 percent.

4. The monetary program is on track. Monetary targets have been tightened in the course of the year, as the balance of inflation indicators have been pointing to inflation rates above the BCU’s target range (which is set each quarter with a 12-month policy horizon). In September, the BCU announced an inflation target of 6–8 percent for September 2005, unchanged from the June 2005 target. In late August, the central bank initiated a market for forward purchases of dollars and pesos by offering contracts at rates consistent with interest rate differentials in the two currencies, but so far the daily volume transacted has been very limited. The end-September PCs on NIR and NDA were met with comfortable margins.

5. Fiscal performance has been better than programmed, reflecting strong revenue performance and strict control over expenditure. The primary surplus of the consolidated public sector reached 2 percent of annual GDP in the first half of the year, 0.9 percent of GDP above the target. The overperformance in the overall deficit was even higher, owing to lower-than-programmed interest outlays. Revenues have outstripped program targets djusted state-enterprise tariffs in line with cost conditions.2 Preliminary data point to continued strong fiscal performance in the third quarter, despite lower-than-programmed revenues at the social security administration and periodic work stoppages at the internal revenue service (DGI) in protest of the agency’s restructuring plan. The government recently announced the establishment of a fund, comprising resources recovered in the bank restructuring process, to buy back debt (mainly domestic, illiquid series). In late- October, the first buy back (face value of US$1 million) was carried out.

6. Progress on structural fiscal reforms has been disappointing. Creation of a large taxpayer unit is moving slowly, and meeting the end-December structural benchmark will be challenging. Congress ended its legislative session in mid-September without acting on tax and special pension fund reforms (end-December structural benchmarks), and it is very unlikely that the Permanent Commission in congress will take up these measures before a new congress meets in mid-February 2005.

7. Progress continues to be made in bank restructuring. Reform of the public banks is moving forward (albeit, greater progress is being made at the commercial bank, BROU, than at the state mortgage company, BHU), the long-delayed process of asset disposal of the liquidated banks has begun, and bank supervision is being strengthened. The strategy for reforming the government-owned commercial bank (NBC) has been revamped following the decision by the IFC not to seek a minority stake in the bank.

  • BROU

    • Restructuring plan. The plan is advancing, with the bank showing profits and operating costs falling. BROU’s asset management company (operating since April) has surpassed its (modest) 2004 performance target on asset recovery.

    • Reprogrammed deposits. The early release of the second tranche of reprogrammed deposits during April–July went smoothly, with 95 percent of deposits staying in the bank and 75 percent remaining in time deposits. In light of this experience, the solid liquidity position of the bank, and the authorities’ view that frozen deposits should not be retained any longer than necessary, BROU has advanced the release of the third and final tranche of reprogrammed deposits (US$773 million). Originally scheduled to start next August, the release began in October and will continue in a gradual manner through April of next year. So far, the results have been encouraging, with the retention rate about the same as with the second-tranche release.3

  • BHU. Despite some progress in reducing operating costs and improving the loan- servicing framework, BHU remains with important underlying weaknesses, including a still large non-performing loan portfolio. BHU’s note to BROU has been serviced on time (continuous PC), but amortization payments still required Treasury support. Following the completion of due diligence of BHU’s investment portfolios and in light of the progress made in upgrading its information systems, in October the World Bank disbursed US$50 million under its SAL-I operation.

  • Liquidation funds of Banco Montevideo, Banco Comercial, and Banco Caja Obrera. After long delays in outsourcing the disposal of the assets of these funds, a private firm was contracted in August 2004 to manage the assets. The end-October PC on transferring all the assets of the liquidation funds to the asset manager was met. To begin addressing concerns regarding management and recordkeeping of the funds, an inventory of assets and balance sheets were prepared in July–August. The funds’ historical financial statements (end-September PC) are being completed as prior actions for this review, and two of three external audits of the funds’ activities have been completed, with the third to be finished by year’s end (the authorities are requesting that the end-October PC on completing the audits be reset for end- December). The delay in meeting the PCs was related mainly to problems in resolving recordkeeping weaknesses in Banco Comercial. Staff will update the Board on the completion of the financial statements and audit results prior to the Board discussion. The liquidation funds have been submitting to the Ministry of Economy and Finance (MEF) and BCU monthly cash flow statements and estimated balance 3 Deposits totaling US$113 million were released between October 13 and November 5, and another US$51 million will be released in the rest of November. The remainder (US$609 million) will be released over December 2004-April 2005. sheets, but these reports have not fully met the monthly PC (for September and October) and will not meet the November PC on submitting financial reports.4 The authorities are requesting that this PC be eliminated, as semi-annual audited financial statements will be published beginning with the end-December 2004 reports.

  • Banco de Crédito (BDC). After several failed attempts to auction the assets of BDC, the government outsourced the management of the nonperforming assets to the private firm managing the assets of the other liquidation funds, and the authorities intend to securitize the performing assets by early next year.

  • Nuevo Banco Comercial (NBC). Following the IFC’s decision in August not to pursue a minority stake in the bank (the authorities had hoped that IFC participation would help strengthen governance in the bank), the authorities hired an investment bank to seek a strategic investor before leaving office.

  • Bank supervision. The BCU has improved the regulatory environment, especially in strengthening credit risk assessment.5 Also, progress has been made in hiring staff to strengthen the Bank Superintendency’s (SIIF) supervisory capacity. Information on debtors of the liquidation funds was transferred to the SIIF’s credit registry in July, but technical problems have delayed its incorporation in the registry. The authorities intend to complete the credit registry updating byend-December (structural PC).

II. Policy Issues

The review focused on: (i) macroeconomic performance under the program; (ii) the fiscal outlook for 2004–05 and updating the debt sustainability analysis (DSA); (iii) the stance of monetary policy; and (iv) progress in key structural reforms in the banking and fiscal areas.

8. Preserving the stabilization and reform gains through the political transition is essential to provide a solid framework for the next administration. Despite the good economic performance so far this year, the economy remains vulnerable from the high level of public debt and remaining weaknesses in the banking system. To address these risks, the discussions emphasized the need to: (i) lock in at least part of the revenue overperformance to solidify the basis for further fiscal consolidation in the years ahead; (ii) continue to conduct monetary policy in a prudent manner to achieve the programmed buildup in international reserves and return inflation to its target range; and (iii) advance key structural reforms, especially in the banking and fiscal areas.

9. The improved economic situation in 2004 has lowered the public debt-to-GDP ratio to close to 90 percent, some 5-percentage points of GDP less than previously envisaged.6 The improvement reflects: (i) higher growth (11 percent compared with 7 percent in the revised program); (ii) a more appreciated real exchange rate (partly because of higher-than-targeted domestic inflation and a nominal appreciation of the peso); and (iii) a smaller overall fiscal deficit (2.4 percent of GDP in 2004, compared with 3.3 percent of GDP in the original program). For next year, growth is expected to moderate to 4 percent and the overall fiscal deficit is programmed to fall further to 1.1 percent of GDP, which along with modest assumptions regarding the real exchange rate, would lower the debt-to-GDP ratio to below 80 percent of GDP.

10. An update of the DSA suggests that maintaining primary surpluses of 4 percent of GDP is consistent with a sustainable debt position by the end of the decade. Under revised yet still cautious assumptions on growth, interest rates, sovereign spreads, and the exchange rate, the DSA shows that the total public debt-to-GDP ratio would be brought down to below 50 percent of GDP by 2012 (compared with 60 percent of GDP in the previous DSA).7,8 However, debt would only fall below 60 percent of GDP in 2008, and the DSA result depends crucially on maintaining sound policies. To sustain primary surpluses of 4 percent of GDP over an extended period will require implementing the structural fiscal reforms envisaged under the current program.

Revised DSA Parameters

(Average 2004-2012)

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Public Debt Sustainability Analysis

In updating the DSA analysis (Country Report No. 04/327, Appendix V), staff assumed a medium-term primary surplus of about 4 percent of GDP (in line with the projected outturn for 2005), potential real GDP growth of 2 percent (somewhat lower than in the original DSA; see Appendix II for a more detailed discussion of growth prospects), and a return of the real value of the peso vis-á-vis the U.S. dollar to its 1991 level (before the real appreciation of the peso began under the exchange-rate-based stabilization program of the 1990s; although, some of the competitiveness gains registered against Brazil and Argentina could be eroded, see Chart on page 7). Cautious assumptions about interest rates and sovereign spreads were maintained. Under these revised assumptions, public debt would decline from a projected 91 percent of GDP in 2004 to below 50 percent by 2012 (assuming no contingent liabilities owing to bank restructuring come due; if there are additional bank restructuring costs, this could add up to about 5 percent of GDP).

uA01fig05

Gross NonFinancial Public Sector Debt, 2001-2012

(Percent of GDP)

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Uruguay’s high public debt will continue to be a significant vulnerability over the next few years. The debt-to-GDP ratio will only fall below 60 percent of GDP in 2008. Large shocks to key variables in the standard DSA analysis such as real growth, real interest rates, and the real exchange rate (depreciation) would lead to significant increases in the public debt-to-GDP ratio that would exacerbate doubts about debt sustainability. However, it must be recognized that Uruguay recently experienced major shocks and has adjusted policies in response, so that a repeat of such shocks and an ensuing crisis is unlikely.

Staff has analyzed three alternative shocks to key macroeconomic variables: (i) an average decline of real GDP growth by 1-percentage point and lower primary surplus by ½-percentage point; (ii) a 200-basis point increase in interest rates over the medium term;1 and (iii) weak confidence in the peso that prevents the expected appreciation in the real exchange rate. In these cases, except the real exchange rate, the public debt ratio is still somewhat resilient. Lack of appreciation of the real exchange rate, however, would leave the public debt above 60 percent of GDP by 2012.

1 About 50 percent of public debt is at variable rates, but the largest part is to IFIs; thus, much of the debt has diversified interest rates and would not be affected by increases in sovereign spreads. Staff’s sensitivity analysis indicates that a 200 bps increase in dollar interest rates raises fiscal interest costs by 0.5 percent of GDP, on an annualized basis.

A. Fiscal Policy and Debt Management

11. Exceeding the primary surplus target for 2004 would help the incoming administration meet next year’s targets. Staff welcomed the authorities’ commitment to refrain from any further tax cuts or tax exemptions and to save any overperformance in revenue, with a view to surpassing the primary balance target for this year. The authorities reaffirmed their intention to continue to keep expenditure in line with the program and adjust public tariffs in a timely manner in line with cost developments. Continued spending restraint is essential for modest fiscal consolidation next year. Staff supported the authorities’ planned budget decree for the first quarter of 2005 (to be issued by year’s end) that caps real spending growth at 1.5 percent (y/y), and underscored the need to adjust petroleum product prices in line with crude oil prices. The authorities noted that the July adjustment to petroleum prices was based on crude oil prices of US$41 per barrel, but given the appreciation of the peso since then, no adjustment was needed unless crude oil prices remained above US$46 per barrel (Box 2.).

Fiscal Implications of Higher World Oil Prices

  • Uruguay imports, on average, 1.1 million barrels of crude oil per month. For each one-dollar increase in the price of crude oil, costs of the state oil company, ANCAP, are estimated to rise by US$13 million (0.1 percent of GDP) on an annual basis.

  • The government has some discretion in adjusting fuel prices. By law, ANCAP cannot change prices on its own accord; rather, it must submit proposed changes to the Office of Planning and Budget for approval. In the absence of exceptional circumstances, price changes can only be done at the time of public wage adjustments. Petroleum products are subject to specific taxes, which currently yield 1.2 percent of GDP.

  • In 2004, the authorities have raised fuel prices by 20 percent to reflect world oil prices of US$46 per barrel at the current exchange rate. Fuel prices at the pump are now among the highest in the region.

12. Over the medium term, it will be crucial to push ahead with structural fiscal reforms. In particular, staff emphasized the importance of strengthening tax administration and reforms of the tax system, the specialized pension funds for the military and police, and the institutional budgetary framework. While many of these reforms require congressional approval and, hence, will need to be taken up by the next government, staff urged the authorities to pursue those reforms they could implement. Specifically, staff highlighted the need to concentrate efforts at the internal revenue service (DGI) to establish a large-taxpayer unit (LTU) by end-December (structural benchmark), and to incorporate recommendations of the Fiscal ROSC regarding supplementary documentation on an updated macroeconomic framework, fiscal risks, and an estimate of the costs of tax expenditure in annual budget decrees. The authorities noted that they are moving ahead with the LTU and expect it to be in place by year’s end. They also agreed with the suggestion to supplement next year’s budget decree with a revised macroframework and a discussion of fiscal risks, but noted that an estimate of tax expenditure would take time and would not be feasible for this budget cycle.

13. Uruguay’s debt management strategy continues to focus on extending the maturity of domestic debt placements, securing timely disbursements from IFIs, and issuing longer-term debt in the international markets. In addition to the 18-month peso- denominated note issued in July (US$250 million), 9 the authorities have extended the residual maturity of dollar-denominated T-bills by about 6 months and started issuing inflation-indexed T-notes with a maturity of 3 years. These placements cover short-term debt rollover needs through June 2005. The authorities have also stepped up efforts to implement policies linked to World Bank and IDB disbursements, and have secured new lending commitments for next year to ease the financing burden for the incoming administration. Staff welcomed these steps and encouraged the authorities to take advantage of opportunities to issue longer-term instruments in the international markets if market conditions permit. The authorities noted that they would consider a bond issue in international capital markets after the elections, to prefinance part of the 2005 gross financing needs (US$1.9 billion). 10

Uruguay: Scheduled Disbursements from Multilateral Development Banks, 2004-05

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B. Monetary and Exchange Rate Policies

14. The authorities intend to continue with the peso float, with base money as the intermediate target of monetary policy. Staff supports the current cautious stance on monetary policy, and views as appropriate the inflation target range of 6–8 percent for September 2005. Regarding the authorities’ plans to move to inflation- targeting, they explained that this could be implemented very soon, but the decision should be left to the next BCU directorate.11 Staff recommended that the BCU not be involved in establishing a market in forward foreign exchange, as this should be left to private banks. The authorities pointed out that such contracts can help spur development of a private market, and stressed that the BCU has made fully transparent the mechanics of forward contract pricing, and that its internal rule to cover all open positions through immediate offsetting transactions in the spot market eliminates any exchange rate risk.12

uA01fig06

Actual and Target CPI

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

15. The strong external environment and absence of election-induced volatility have allowed the BCU to meet its targeted build up of international reserves with comfortable margins. Staff urged the authorities to exceed the program target, pointing out that a further build up was warranted (including over the medium term) in light of the still relatively low level of coverage of deposits and short-term debt compared with other dollarized economies in the region. The authorities agreed that a further NIR increase would be desirable over time, but noted that a higher buildup would result in the issuance of additional central bank debt and a widening of the quasi-fiscal deficit. The authorities reiterated their commitment to reducing financial dollarization, noting that the required strengthening of confidence in the peso would take time.

C. Banking Reforms

16. Progress in bank restructuring needs to continue to minimize contingent costs for the public finances. Staff welcomed progress in: outsourcing asset management of the liquidation funds and examining their past operations; reforming the public banks; and strengthening bank supervision. Staff stressed the need to improve governance at NBC and urged that the authorities move cautiously with establishing a deposit insurance scheme.

  • Liquidation funds. Staff welcomed the important steps to advance the liquidation of the funds’ assets and encouraged the authorities to build on this progress. Staff advised that the asset liquidation process be carried out transparently, with appropriate oversight of the asset manager, who should have full access to the credit files, and stressed the need for close coordination between the liquidation funds and the asset manager. The authorities concurred with staff and noted that since the beginning of November, the asset manager has had full and timely access to all credit files. Staff welcomed the authorities’ decision to establish a structural benchmark (for end-January 2005) to monitor the performance of the asset manager (LOI, paragraph 6 and Table 2). Staff noted that the swap scheme offered in July had attracted very few offers to participate, and welcomed the authorities’ commitment to avoid offering any additional compensation to creditors of the funds.13

  • BROU

    • Restructuring. Staff underscored the need to sustain the momentum of reforms at BROU, as the bank’s deposits account for half of all deposits in the banking system, with large contingent costs for the government if the reforms do not prosper. Moreover, strengthening the bank’s risk management and credit policies and practices will enable sustained lending by the bank for support of economic growth. Staff welcomed the progress at BROU’s asset management company (AMC), while stressing the need for the AMC to receive full cooperation from BROU staff to efficiently manage the assets. The authorities assured staff that the working relationship between BROU and the AMC was solid and affirmed that all new and remaining Category 4 and 5 nonperforming loans would be transferred to the AMC by end-December, in line with the structural PC under the program.

    • Reprogrammed deposits. Staff concurred with the authorities’ assessment that BROU had sufficient liquidity to support the early release of the last tranche of reprogrammed deposits, while noting that the release should wait until electoral uncertainty ends. The authorities explained that any uncertainty related to the election outcome had no discernible economic or market impact, and that the freeze should not be maintained any longer than was necessary; therefore, their seven-month release schedule was appropriate. Staff welcomed the authorities’ commitment to stand ready to take all necessary actions in the unexpected event of deposit outflow and to release only a small part of the deposits before the elections.

  • BHU. The transformation of BHU into a nonbank mortgage company needs to be stepped up. Staff noted the progress in the bank’s restructuring and that the bank’s loan with BROU has been fully serviced this year. Nevertheless, staff highlighted that the bank’s fundamentals remain weak and service of its note to BROU (which is guaranteed by the government) is a key medium-term fiscal risk. The authorities shared staff’s concerns, but pointed out that BHU has been servicing the interest component of its debt with BROU six-months ahead of schedule, and they expect to have no problem with BHU meeting next year’s obligations.

  • NBC. The authorities need to address governance issues at NBC, including appointing a CEO and board members with necessary qualifications and banking experience. Staff regretted that the IFC would not become a minority shareholder in the bank, which had been envisaged as a means of strengthening governance in the bank, and supported the authorities’ new strategy to find a majority shareholder for the bank. However, the authorities noted that finding a suitable buyer so close to a change in government would be challenging.

  • Bank supervision. Staff welcomed the recent progress in hiring staff for the SIIF and in strengthening bank regulations on assessing credit risk. The objective to hire 40 new staff by February 2005 is within reach, but will require focused efforts. Staff underscored the need to further improve risk assessment by incorporating exchange rate risk explicitly into the assessment process. Staff stressed the need to fully update (as soon as feasible) the national credit registry with information from the liquidation funds’ asset inventory.

  • Deposit insurance. Staff cautioned that upfront funding for an ambitious insurance program would result in a significant increase in dollar-denominated public debt (as the stock of dollar deposits in the banking system is over US$7.5 billion), and recommended to proceed cautiously. Staff also pointed out that the structure of the Uruguayan banking system presents significant implementation challenges (such as the explicit government guarantee on BROU deposits). The authorities agreed that design and implementation of such a scheme would need to be carried out in a cautious manner, and that this would likely be taken up by the new administration.

Table 1.

Uruguay: Selected Economic and Financial Indicators

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Sources: Data provided by the Uruguayan authorities; and Fund staff estimates.

Evaluated at program exchange rates for 2004.

Part of the sharp drop in 2003 is due to the removal of the three liquidated banks from the database in May 2003.

Defined as changes in reserve assets.

Defined for combined public sector.

Excludes nonresident deposits.

Table 2.

Uruguay: Summary Balance of Payments

(In millions of U.S. dollars)

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Sources: Central Bank of Uruguay; and Fund staff estimates.

Including nonresident deposits.

III. Vulnerabilities and Program Risks

17. While Uruguay has recovered well from the 2002 crisis, its economy remains vulnerable from the high public debt, exposure to interest rate and oil price shocks, and banking sector weaknesses. While most indicators of financial vulnerability continue toshow improvement, fragilities remain in the banking system; in particular, dollarization remains high, with the majority of dollardenominated deposits in sight deposits, and the public banks (which hold half of total deposits) are still in the process of restructuring. Financial intermediation has yet to fully recover, and proper credit and risk management policies will be essential to avoid a resurgence of NPLs. Banking system reserves are relatively low compared with other dollarized economies in the region.

Vulnerability Indicators

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Sources: Central Bank of Uruguay; and Fund staff estimates.

For 2004, end-May.

Includes obligations to the IMF.

By remaining maturity.

18. Fund exposure to Uruguay is likely to remain high for some time. Despite the authorities’ welcome decision to forego one disbursement under the current program, Fund credit outstanding would reach 609 percent of quota (around 20 percent of GDP) at the end of the arrangement in March 2005. While Uruguay’s balance of payments has strengthened in recent years, gross reserves of the central bank need to be bolstered further (they remain well below their level before the crisis), and capacity to repay the Fund on an expectations basis in 2005 is limited. Full-year repayment on an expectations basis would reach 9 percent of GDP; therefore, to smooth out repayments to the Fund, the authorities intend to repay the Fund on an expectations basis through May 2005 and are requesting conversion of remaining purchases due in 2005 to an obligations basis. The authorities also explained that establishing now the repayment schedule for the entire year will facilitate debt management in 2005. Nevertheless, even under their proposed repayment schedule, the repayment burden to the Fund will rise steeply in 2005–07, when annual payment obligations are projected to average about SDR 485 million, roughly 4 percent of average GDP over the period.

Uruguay: Payments to the Fund, 2004-07

(In millions of SDRs)

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Assumes obligations basis 2006-07.

IV. Program Financing, Monitoring, and Safeguards

19. Financing Assurances. Financing needs through June 2005 have been secured. Staff’s baseline scenario for the remainder of 2005 assumes modest access to domestic and international financial markets that depends, of course, on maintaining sound policies—in particular, meeting the fiscal target. Financing requirements for the remainder of the decade, which will average about US$1.5 billion a year (7.5 percent of average annual GDP), will need to be met through private capital market placements and continued IFI support.

20. Program Monitoring. Uruguay’s statistical database has been generally adequate for assessing and monitoring macroeconomic policies, but the lag in providing fiscal data from below the line (albeit reduced since a coordinating committee on fiscal data was established at the time of the last review) still exceeds the 60-day limit in the TMU. Staff welcomed the shortening of the period (from two months to one) in publishing data on central government operations and the publication of information on the stock of floating debt, but urged that further efforts be made to reduce the reporting lag on below-the-line fiscal data. Prior actions, performance criteria, benchmarks, and indicative targets under the program are specified in the attached LOI and TMU (Attachments I and II). The seventh review is expected to take place in February 2005.

21. Safeguards. The recommendations of the 2002 Safeguards Assessment are being implemented, albeit with some delays. The external audit of the BCU’s 2003 financial statements was finalized in March, and the BCU has created an independent audit committee to oversee the bank’s financial reporting practices. However, only limited progress has been made in adopting fully International Financial Reporting Standards in BCU financial statements, and implementation of the recommendation to publish by end-April of each year the audited financial statements of the central bank of the previous year depends on the approval of the Tribunal de Cuentas (national audit office). Only one out of four supplemental audits of the bank stabilization fund (FSBS) has been completed (end-March 2004 structural benchmark).

V. Staff Appraisal

22. Uruguay is recovering well from the 2002 financial crisis, with a significantly strengthened outlook for debt sustainability. The improved situation is a product of the sound macroeconomic policies pursued by the authorities and the supportive external environment. Staff encourages the authorities to further capitalize on the current favorable environment, continue with sound macroeconomic policies, and push ahead with structural reforms, to set the basis for a sustained expansion of the economy and a smooth transition to a new government that will take office in 2005.

23. Exceeding the primary surplus target under the program will buttress the medium-term outlook for continued fiscal discipline and debt sustainability. Staff welcomes the authorities’ commitment to save part of the growth dividend for revenue and achieve a primary surplus in excess of the program target for 2004. They intend to achieve this by refraining from any further tax reductions, maintaining expenditure restraint, and keeping public utility tariffs broadly aligned with operating costs. In particular, the authorities need to continue to ensure timely pass through of world oil prices to domestic fuel prices. Delivering on these commitments will be important to facilitate continued fiscal discipline next year and beyond, which in turn will be critical for maintaining market confidence. The favorable growth and fiscal outturn projected for this year have made important contributions to promoting debt sustainability over the medium-term, but there is no room for fiscal slippage.

24. Staff regrets the slow progress on fiscal reforms. Delivering the necessary primary surplus targets over the medium term will depend crucially on addressing structural weaknesses in Uruguay’s public finances, by strengthening revenue administration, reforming the tax system and the specialized pension funds of the police and military, and improving the institutional budgetary framework. Staff encourages the authorities and other parties to the political process to work toward a consensus on these reforms that will need to be taken forward by the next government.

25. Monetary policy is being conducted in a prudent manner. Staff supports the present stance of monetary policy that aims at reducing inflation to the target range of 6–8 percent within the 12-month policy horizon. While the authorities raised the 2004 NIR target under the program during the last review, staff encourages them to use the opportunity of a stronger-than-programmed balance of payments to bolster Uruguay’s NIR position even further, in anticipation of the large medium-term debt service obligations. Staff recommends against direct participation of the central bank to create a forward foreign-exchange market, which should develop through private initiative as confidence in the peso strengthens.

26. Maintaining momentum in restructuring the public banks is essential to ensure their viability, improve creditor discipline, minimize potential fiscal costs, and support a sustainable return to financial intermediation. Staff welcomes efforts made in the restructuring of BROU and BHU and urges continued progress. For a successful workout of BROU’s nonperforming loans, the asset management company will need full cooperation of BROU staff. The unfreezing of the third and final tranche of reprogrammed deposits is proceeding smoothly following a cautious schedule. Acceleration of the BHU reform program to ensure that the bank can service its obligations is essential to address a key medium-term fiscal risk.

27. Liquidation of the assets of the failed banks is finally underway, and the steps taken to ensure transparency of the liquidation funds’ operations are essential to address governance concerns. Dealing with the remaining assets in the liquidation funds in a transparent way is important to raise creditor discipline, limit fiscal costs, and maintain public confidence. Although there has been some delay with financial statements and audits of the liquidation funds, the financial statements are being completed as prior actions for this review and two of the three audits are finished, with the third to be completed by year’s end. Continued close monitoring of the liquidation funds’ activities is necessary to ensure that any potential further problems are quickly addressed and the asset disposal process proceeds as foreseen in the contract with the asset manager. The authorities should continue to refrain from granting any further compensation schemes to bondholders and large depositors of the liquidated banks.

28. Appropriate resources need to be devoted to ensure the timely provision of fiscal data. While fiscal data lags have diminished, they are still over 60 days. Staff welcomes the advance by one month of published data on central government operations and the publication of information on the stock of floating debt.

29. While the risks to the program have diminished, significant vulnerabilities remain, leaving no room for policy slippages. Important risks remain from the still high public debt, the high degree of financial dollarization, and remaining weaknesses in the banking system. To manage these risks, it will be crucial to protect the main elements of the program through the political transition.

30. For the new government, the key challenge will be to pursue its economic and social priorities in a way that preserves and builds on the stabilization gains achieved. This will require, in particular, continued focus on fiscal consolidation and medium-term debt sustainability, rebuilding the Uruguayan banking system, and reforms that boost the economy’s growth potential by strengthening productivity and competitiveness, as Uruguay integrates further into the region and the global economy. Staff hopes that the new government and congress will reach a consensus and move decisively in carrying out the necessary structural reforms to ensure sustained high growth and financial stability.

31. Staff supports the authorities’ request for waivers and completion of the sixth review and their request for an extension of repurchase expectations to an obligations schedule for June 2005-December 2005. Performance under the program has been broadly satisfactory, especially with the key macroeconomic policies and banking reforms. The missed structural PC on preparation of financial statements of the liquidation funds is a prior action for this review, Staff supports the request for waiver of nonobservance of the end- October PC on completing external audits of these statements and the resetting of this PC to end-December, as two of the three audits have been completed and the third is well advanced. Staff also supports the waivers of nonobservance of the monthly PCs for September, October, and November on submitting financial statements of the liquidation funds; looking forward these monthly PCs can be dropped as the authorities will begin publishing audited semi-annual financial statements beginning with the December 2004 statements. Waivers of applicability of end-September fiscal and debt performance criteria are requested as final data will not be available at the time of the review; staff expects that the targets will be observed.

Table 3.

Uruguay: Quantitative Performance Criteria and Indicative Targets Under the 2004–05 Economic Program 1/

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Sources: Ministry of Economy and Finance; and Central Bank of Uruguay.

As defined in the Technical Memorandum of Understanding.

Cumulative changes from end-December 2003.

Adjusted upward/downward for changes in social security contributions, as defined in the TMU.

Adjusted upward/downward for changes in collections of the Fondos de Libre Disponibilidad (FLD), as defined in the TMU.

Adjusted upward/downward for changes in program disbursements from the World Bank and IDB, as defined in the TMU.

All maturities. The 2003 base includes all loans guaranteed by the government. For December 2003, the debt ceiling has been adjusted upwards to reflect the transfer of Brady bonds from the central bank to the government.

Adjusted upward/downward for changes in interest payments, as defined in the TMU.

Cumulative change from December 2003 average.

Table 3.

Uruguay: Performance Under the 2004-05 Economic Program (concluded)

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Table 4.

Uruguay: Public Sector Operations

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Sources: Ministry of Finance; and Fund staff estimates.

Preliminary.

Excludes contributions that are transferred to the private pension funds.

Includes extrabudgetary operations.

Includes the following bank-restructuring costs: US$33 million of capital transfers for bank recapitalization, US$564 million of liquidity supplied by BCU, US$444 million for the Fondo de Fortalecimiento del Sistema Bancario (FFSB), and US$993 million for the FSBS.

Table 5.

Uruguay: Cash Flow of the Nonfinancial Public Sector

(In millions of U.S. dollars)

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Sources: Ministry of Finance, Central Bank of Uruguay; and Fund staff estimates.
Table 6.

Uruguay: Summary Accounts of the Banking System 1/

(In millions of Uruguayan pesos, unless otherwise indicated)

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Sources: Banco Central del Uruguay; and Fund staff estimates.

Presentation used for program monitoring. May differ from presentation and definitions used in IFS.

The Banco de la Republica Oriental de Uruguay (BROU), Banco Hipotecario de Uruguay (BHU; mortgage institution), private banks, and cooperatives.

Excludes nonresident deposits.

Table 7.

Uruguay: Medium-Term Outlook

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Sources: Central Bank of Uruguay; and Fund staff estimates.

Combined public sector includes nonfinancial public sector and central bank.

Table 8.

Uruguay: Proposed Schedule of Purchases

(In millions of SDRs, unless otherwise indicated)

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Source: Fund staff estimates.
Table 9.

Uruguay: Projected Payments to the Fund and Indicators of Capacity to Repay the Fund

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Sources: Finance Department; and Fund staff estimates and projections.

Assuming that all scheduled purchases are made and that repurchases under the SRF and SBA in 2004 are made on an obligations basis. Consistent with the authorities’ plans, SBA repurchases in 2005 are assumed to be made on an expectations basis through May and on an obligations basis from June-December. Remaining repurchases are assumed to be made on an obligations basis. On March 17, 2003, the IMF Executive Board converted the two remaining SRF repurchases to an obligations basis. On February 20, 2004, the IMF Executive Board converted SBA repurchases falling due in 2004 to an obligations basis.

Projections are based on current rates of charge, including burden-sharing where applicable, for purchases in the GRA. The current SDR interest rate is assumed for net use of SDRs.

Table 10.

Uruguay: Vulnerability Indicators

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Sources: Central Bank of Uruguay; and Fund staff estimates.

For 2004, end-May.

For 2004, end-October.

Includes obligations to the IMF.

For 2004, end-July.

For 2004, end-August.

By remaining maturity.

Figure 1.
Figure 1.

Uruguay: Activity and Prices

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Source: Central Bank of Uruguay; Ministry of Economy and Finance; and Fund Staff estimates.
Figure 2.
Figure 2.

Uruguay: External Sector Indicators

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Source: Central Bank of Uruguay; Ministry of Economy and Finance; CERES; and Fund staff estimates.
Figure 3.
Figure 3.

Uruguay: Financial and Vulnerability Indicators

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Source: Central Bank of Uruguay; Ministry of Economy and Finance; and Fund Staff estimates.
Figure 4.
Figure 4.

Uruguay: Fiscal and Monetary Indicators

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Source: Central Bank of Uruguay; Ministry of Economy and Finance; and Fund Staff estimates.

APPENDIX I

Table 1.

Uruguay: Nonfinancial Public Sector Debt Sustainability 1/.

(Excludes costs of Bank restructuring)

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Sources: Ministry of Finance; Banco Central del Uruguay; and Fund staff estimates.

Framework covers the nonfinancial public sector (including obligations to the Fund) and debt is measured in gross terms.

Table 2.

Uruguay: Nonfinancial Public Sector Debt Sustainability 1/

(Includes costs of Bank restructuring)

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Sources: Ministry of Finance; Banco Central del Uruguay; and Fund staff estimates.

Framework covers the nonfinancial public sector (including obligations to the Fund) and debt is measured in gross terms.

Table 3.

Uruguay: Sensitivity of Nonfinancial Public Sector Debt 1/

(In percent of GDP)

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Sources: Ministry of Finance; Banco Central del Uruguay; and Fund staff estimates.

Framework covers the nonfinancial public sector (including obligations to the Fund) and debt is measured in gross terms.

Table 4.

Uruguay: Public Sector Debt Sustainability Framework, 1999–2009.

(In percent of GDP, unless otherwise indicated)

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Framework covers the nonfinancial public sector (including obligations to the Fund) and debt is measured in gross terms.

Derived as [(r-π(1+g)-g+αε(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; t = growth rate of GDP deflator; g = real GDP growth rate; α = share of foreign-currency denominated debt; and ε = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r - π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as αε(1+r).

For projections, this line includes exchange rate changes, the use of deposits, balances from FSBS, and part of IMF disbursements.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

Real depreciation is defined as nominal depreciation (measured by percentage fall in dollar value of local currency) minus domestic inflation (based on GDP deflator).

Table 5.

Uruguay: External Debt Sustainability Framework, 1999–2009

(In percent of GDP, unless otherwise indicated)

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Derived as [r-g-ρ(1+g)+εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock, with r = nominal effective interest rate on external debt; ρ = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-ρ(1+g)+εα(1+r)]/(1+g+ρ+gρ) times previous period debt stock. ρ increases with an appreciating domestic currency (ε>0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

APPENDIX II Investment andGrowth

Historically, capital accumulation has been the main engine of growth in Uruguay, but total factor productivity (TFP) needs to recover from the sharp decline in the recent recession. Real growth averaged 2 percent a year between 1960 and the run-up to the regional crisis in the late 1990s. The economy experienced a prolonged recession between 1998 and 2001, which was exacerbated by the 2002 financial crisis when the economy contracted 11 percent. Since then, the economy has recovered strongly in 2003–04. Periods of substantial increases in investment were matched by strong positive real GDP growth (Figures 1 and 2).

Figure 1.
Figure 1.

Investment and GDP growth (percent)

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Figure 2.
Figure 2.

Growth in output, factor inputs and TFP, 1960-2012

Citation: IMF Staff Country Reports 2005, 014; 10.5089/9781451947625.002.A001

Several large-scale investment projects are being planned for the medium term, but sustained growth will require further improvements in the investment climate to broaden the scope of investment and raise TFP. Two large projects to build wood pulp mills with a combined investment of US$1.5 billion (12 percent of GDP) are well-advanced. Other sectors where significant investment is underway include agroindustry and tourism. However, to broaden the scope of investment and raise TFP, it will be important to:

  • Reduce the role of the public sector in the economy and improve its efficiency to lower public sector absorption of domestic savings.

  • Open sectors where public enterprises operate gradually to private sector competition.

  • Broaden the sources of financing for investment, which historically have relied almost exclusively on bank credit.

  • Maintain macroeconomic stability.

  • Simplify the regulatory environment to make it more investment friendly and competitive in the region.

APPENDIX III Uruguay-Fund Relations

(As of September 30, 2004)

Membership Status: Joined March 11, 1946; Article VIII

A. Financial Relations

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Financial Arrangements:

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VI. Projected Obligations to Fund: (Obligation Basis) (SDR millions; based on existing use of resources and present holdings of SDRs):

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B. Nonfinancial Relations

VII. Safeguards Assessment: An on-site assessment of the BCU was conducted in July 2002, and the final safeguards assessment report was approved by Fund Management in January 2003. The assessment identified a need to strengthen the control and oversight framework within the BCU, in particular in the external audit area. To this end, staff recommended the establishment of an audit committee, the hiring of a private audit firm with international affiliation to perform a financial audit of the BCU, and the establishment of similar external audit procedures for the FSBS. The authorities committed to the implementation of all the safeguards recommendations. One of the four supplementary external audits of the FSAs has been completed, with three on-going. An external audit of the BCU’s 2003 accounts has been completed. The BCU has created an independent audit committee to oversee the bank’s financial reporting practices. Limited action has been taken to implement International Financial Reporting Standards in published financial statements. The recommendation to publish by end-April the audited financial statements of the central bank of the previous year cannot be guaranteed as this depends on the approval of the Tribunal de Cuentas (national audit office).

VIII. Exchange Rate Arrangement: The currency is the Uruguayan peso (Ur$). Uruguay has followed an independently floating exchange rate regime since July 29, 2002. On October 26, 2004, buying and selling interbank rates for the U.S. dollar, the intervention currency, were Ur$27.25 and Ur$27.30, respectively. Uruguay’s exchange system is mostly free of restrictions on payments and transfers for current international transactions. However, the reprogramming of time deposits at BROU and BHU gives rise to an exchange restriction under Article VIII, as it prevents nonresidents affected by the reprogramming from transferring abroad proceeds of recent current international transactions. Staff has recommended approval of the exchange restriction, given that it is temporary and does not discriminate among Fund members.

IX. Article IV Consultation: The 2003 Article IV consultation was concluded by the Executive Board on July 11 (Country Report No. 03/247). Uruguay is on the standard consultation cycle governed by the provisions approved by the Executive Board on July 15, 2002.

X. FSAP participation, ROSCs, and OFC Assessments: The ROSC-module on fiscal transparency was published on March 5, 2000. A ROSC-module on data dissemination practices was published on October 18, 2001. An FSAP exercise was started in November 2001, but was subsequently suspended on account of the financial crisis in 2002.

XI. Technical Assistance: Technical assistance in tax policy and tax administration was provided by FAD in May and July 2003. In April 2003, STA provided technical assistance on adequate recording of loans funded by the FSBS. MFD has been providing substantial technical assistance since 2002 in the resolution of intervened banks and the restructuring of the public bank BROU.

XII. Resident Representative: Mr. Andreas Bauer

APPENDIX IV Relations with the WorldBank Group

The Board considered the last Country Assistance Strategy (CAS) on May 5, 2000 and a CAS Progress Report on July 25, 2002. The Bank increased its financial support, shifting to a case lending scenario of US$550 million for fiscal years 2002–04, concentrated in adjustment lending. A Structural Adjustment Loan (SAL 1) and a Special Structural Adjustment Loan (SSAL 1) were approved with the CAS PR, totaling US$303 million, to assist Uruguay in addressing structural weaknesses and in managing the economic crisis. On April 8, 2003, another structural adjustment package (SAL 2 and SSAL 2) was approved totaling US$252.5 million, focusing on improving public services and human development policies. Progress in implementation of SAL 1 and SSAL 1 has been satisfactory, and the last tranche release in the amount of US$100 million (US$50 of SAL 1 and US$50 of SSAL 1) is expected for the first quarter of FY05. Progress in implementation of SAL 2 (public services) has been slow, as opposed to SSAL 2 (human development policies). Nevertheless, second and third tranche releases of both operations—that are linked—have been delayed. Approval of new investment operations was postponed in mid-CY02. A new CAS PR is being prepared for the transition period, and a new CAS will be prepared with the new administration that takes office in March 2005.

The investment portfolio comprises six projects totaling US$289.5 million in commitments, with an undisbursed amount of US$131.6 million as of August 31, 2004. Of the two structural adjustment packages, a total of US$275 million remains to be disbursed. The last Investment Portfolio Performance Review took place in December 2003. At that time, the portfolio presented low levels of execution, mostly due to the fiscal constraints faced by Uruguay. However, implementation of the investment portfolio, measured in terms of percentages of budgetary execution and disbursement ratio, is now accelerating as the economic situation improves.

FINANCIAL RELATIONS WITH THE WORLD BANK GROUP

(In millions of U.S. dollars)

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APPENDIX V Relations with the Inter-American Development Bank

The most recent IDB Country Strategy for Uruguay focuses on the following priority areas: (i) enhancing the regional and international competitiveness of domestic output and encouraging private investment, in order to foster healthy competition and allow for integration with both the regional and international markets; (ii) deepening the reform of the State, with a view to rationalizing expenditure, targeting interventions, and reducing its role in the production of domestic goods and services; and (iii) improving social welfare and increasing equity, particularly to those families and children living in poverty. The IDB is currently preparing a new Country Strategy for Uruguay for 2005–09.

As of October 15, 2004 the Bank’s active portfolio in Uruguay included 18 loans for the financing of investment projects; one sector loan, for strengthening the banking sector; and 29 nonreimbursable technical cooperation operations for US$16.7 million. The lending portfolio amounts to US$989.6 million, of which US$452 million are pending disbursement. The IDB’s lending program for 2004 includes a highway infrastructure program for US$77 million; financing for a program to support livestock competitiveness for US$25 million; and a loan by the Private Sector Department under the trade financing facility (ABN-AMRO) for US$12.5 million. The tentative lending program for 2005 includes a social sector program (policy-based loan), for an estimated US$250 million.

FINANCIAL RELATIONS WITH THE INTER—AMERICAN DEVELOPMENT BANK

(In millions of U.S.dollars)

Total outstanding loans: US$2,231.7 1

Loan transactions:

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Source: Inter-American Development Bank.

As of August 31, 2004.

IDB projections, as of September 31, 2004.

APPENDIX VI Uruguay: Statistical Issues

The statistical database in Uruguay is generally adequate for the assessment and monitoring of macroeconomic policies, but important weaknesses exist, especially in the fiscal sector. A multisector mission of November 10–24, 1999 developed an action plan for bringing Uruguay’s data dissemination policies and practices into line with the Fund’s Special Data Dissemination Standard (SDDS). To improve the provision of fiscal data for program monitoring purposes, the government established recently a committee to bolster coordination between the MEF, the BCU, BROU, and BHU.

Real sector

National account statistics have a number of shortcomings, including the use of an outdated benchmark year 1983, limited coverage of the enterprise survey, long publication lags, inadequate information on the informal economy, and incomplete quarterly accounts. The BCU compiles and disseminates annual GDP estimates in current and constant prices by production and expenditure approach, as well as quarterly constant price GDP estimates by production and expenditure approach. Gross national income, gross disposable income and gross savings are also available annually. The November 1999 multisector mission recommended a range of improvements including the completion of the revision of data and methods that had already been partially carried out, introduction of annually chained volume measures, incorporation of new benchmark survey data, and compilation of quarterly estimates of GDP at current prices.

The authorities do not provide trade price and volume indices for publication in the International Financial Statistics (IFS).

Both the consumer and wholesale price indices are reported on a regular and timely basis for publication in the IFS. The consumer price index has a base period of March 1997 =100, and the wholesale price index’s base has been updated to 2001. The coverage of the CPI is limited to the capital city.

Government finances

Official data on the central administration, the state enterprises and the social security system are complete and current, but there are problems with the timeliness of the data on local governments; there are also problems with the timeliness of financing and debt data reported for inclusion in the Fund’s statistical publications. However, the reporting lag on central government operations has been reduced by one month and the authorities have started the publication of information on the stock of floating debt. The multisector mission that visited Uruguay in November 1999 reviewed the sources used for the compilation of central government financing data and identified sources of information for local governments. The mission made recommendations for the compilation of this data and its reporting to STA. The information reported for publication in the Government Finance Statistics Yearbook includes data on the central government; however, complete annual central government debt data have not been reported for periods after 1994 and data on local governments have not been reported for periods after 1997. Following the recommendations of the multisector mission, however, significant improvements have been made in the compilation and dissemination of financing and debt data. Information on a monthly and quarterly basis for financing and debt data respectively, are disseminated on the Central Bank’s website from 1999 onwards for the central government and total public sector.

Monetary accounts

Two STA money and banking statistics missions visited Montevideo in July 1998 and March 1999. The missions reviewed the timeliness, coverage, and classification of the monetary accounts for the banking system and developed a unified system for reporting data to the Fund. The 1999 multisector mission continued work on improving the basic source data and the methodology for compiling monetary statistics, and recommended a new reporting system, which has since been adopted by the Central Bank. The mission developed a database that contains the data needs for publication in IFS and for operational use by WHD.

The STA mission that visited Montevideo in April 2003 provided recommendations for the adequate recording of the loans funded from the Fund for the Stabilization of the Banking System (FSBS) in the Central Bank’s balance sheet. The mission’s recommendations have been implemented and were reflected in the IFS June 2003 issue.

Balance of payments

Balance of payments statements are compiled and published on a quarterly basis. Data are compiled following the recommendations of the fifth edition of the Balance of Payments Manual (BPM5). The authorities have made significant progress in implementing the multisector mission recommendations in order to improve the coverage and quality of balance of payments estimates. The directory of direct investment enterprises has been updated and measures have been introduced to improve the survey on inward investment; quarterly surveys have been introduced in the case of services, and other activities not currently covered; the coverage of reserve assets has been revised to exclude certain assets that are not available to finance balance of payments needs. Uruguay compiles and reports to STA annual data on balance of payments and the international investment position (IIP) for publication in the IFS and the Balance of Payments Statistics Yearbook. The new surveys would also allow for improved coverage of the private sector in the IIP.

In October 2003, Uruguay disseminated the international reserves and foreign currency liquidity data template on the Central Bank’s website for the first time. Monthly information on the data template is currently available for August 2003–September 2004.

Uruguay: Core Statistical Indicators

(As of August 1, 2004)

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ATTACHMENT I

Montevideo, Uruguay

November 12, 2004

Dear Mr. de Rato:

1. Since completion of the fifth review under the Stand-By Arrangement last August, the Uruguayan economy has recovered faster than expected, financial indicators have continued to improve, and good progress is being made in implementing the program. In this letter, we update our economic program through the end of the Stand-By Arrangement (March 2005), maintain the end-December quantitative performance criteria (PCs) set at the fifth review, propose modification of the structural performance criterion on the completion of audits of the liquidation funds, and deletion of the monthly structural performance criterion on the submission of financial statements of the liquidation funds, which had been set at that same review. We have reached understandings on an additional structural performance criterion on the incorporation of debtor information from the liquidation funds into the credit registry of the Superintendency of Banks and a structural benchmark on the performance of the liquidation funds’ asset manager. The liquidation funds will continue to submit monthly financial reports to the Ministry of Finance (MEF) and central bank (BCU), but we request eliminating the monthly structural performance criteria on this reporting. The end-September PCs on NIR, NDA, and general government noninterest expenditure were observed, as were the end-June PCs on the primary surplus of the combined public sector and the gross debt of the nonfinancial public sector. The last purchase under the arrangement is subject to a program review to be completed by mid-February 2005.

2. Real GDP grew by 13.6 percent during the first half of 2004. Inflation is under 9 percent, despite higher energy and electricity prices. Consistent with these developments, we have raised our projection for real GDP growth in 2004 to 11 percent, and we expect inflation to end the year at around 9 percent. The current account is expected to show a modest deficit, reflecting the strong pickup in imports that, in part, is being financed by foreign direct investment. Gross international reserves are expected to increase, raising the coverage of dollar liabilities in the banking system by official reserves and banks’ foreign assets to about 62 percent.

3. The fiscal program is well on track, and we are aiming to exceed the primary surplus target of 3.4 percent of GDP in 2004. Expenditure restraint will be maintained, and public tariffs will continue to be adjusted in line with operational costs. No further tax reductions will be granted, and any overperformance of revenue will be saved. We will continue with the modernization of the tax administration, including by establishing a Large Taxpayers Unit by end-December (structural benchmark). To strengthen the budget process, we intend to submit with the expenditure authorization for the remainder of this administration, which will limit the increase in real expenditure in in the first quarter of 2005 (y/y) to 1.5 percent, supporting documentation that would include a discussion of the macroeconomic outlook and fiscal risks.

4. The strong growth and fiscal performance in 2004 has enabled Uruguay to achieve a larger reduction in public debt (as a percentage of GDP) than previously envisaged. Our debt sustainability analysis has been revised to reflect the latest developments and shows that with a primary surplus for the combined public sector of about 33/4 percent of GDP in 2005, rising to 4 percent in subsequent years, the bt-to-GDP ratio would decline to 48 percent by 2012.

5. The monetary program is on track, and we expect to meet the end-December program targets on NDA and NIR with comfortable margins. Base money growth targets have been maintained at the level announced in June, consistent with the attainment of a targeted inflation range of 6-8 percent by September 2005. The government will maintain the floating exchange rate policy.

6. The implementation of measures to reform the banking system is moving ahead.

  • We have transferred all remaining assets of the three liquidation funds to the asset manager (end-October PC); and the asset manager has started operating and is expected to complete a business plan by end-November. A structural benchmark has been established for the asset manager to reach 700 payment agreements approved by its creditor committee by end-January 2005.

  • The end-September PC on completion of the financial statements covering operations of the three liquidation funds since inception was missed and this measure is a prior action for completion of this review. The delay in these statements also resulted in the end-October PC on completion of financial audits of the funds to have been missed, and this PC is proposed to be reset for end-December 2004. Two of the three audits have been completed and we will be working on strengthening the financial records of the liquidation funds based on the auditor’s findings.

  • We have been transmitting monthly cash flow statements and estimates of the fund’s assets and liabilities to the Ministry of Economy and Finance and the Central Bank; however, the monthly PC for September 20 and October 20 on submitting full financial statements have not been fully observed (and will not be observed for November 20 as well) as resource constraints in gearing for the audits complicated preparation of full balance sheets. Consistent with our laws, we will publish, semi-annually, audited financial statements of the liquidation funds starting in 2005. While monthly reporting on the liquidation funds will continue, in light of the coming publication of fully audited reports, we request eliminating the monthly PC under the program.

  • The government has not increased its compensation plan for depositors and other creditors of the three liquidated banks beyond the exchange offer made in July, and we will continue to refrain from any such assistance.

  • BROU is continuing to make good progress in its operational restructuring, and its asset management trust has already exceeded its recovery targets for the year. The transfer of all remaining nonperforming loans will be completed at end-December, as envisaged under the program (structural PC). In view of the bank’s strong liquidity position and the good economic environment, we have decided to advance in a cautious manner the unfreezing of the third (and last) tranche of reprogrammed deposits (US$773 million), originally scheduled to start in August 2005. Between October 13 and November 5, US$113 million of deposits were unfrozen, with BROU retaining 94 percent of the deposits and 57 percent remaining in time deposits. In the rest of November, we will release another US$51 million, with the rest to be released over the period December 2004-April 2005. This will complete the return of all deposits frozen during the 2002 financial crisis.

  • BHU’s operational performance is satisfactory, and its note to BROU is being serviced on time (continuous structural PC). With the completion of the due diligence of BHU’s investments and progress in the installation of its information systems, the World Bank disbursed US$50 million in October.

  • We are continuing to take steps to improve governance at NBC, and have contracted an investment bank to seek a suitable majority partner.

  • All remaining private claims against the liquidation fund of Banco de Crédito have been extinguished. Remaining nonperforming loans have been outsourced to an asset manager, and we are in the process of securitizing the performing portfolio.

  • We are continuing to strengthen bank supervision and expect to increase the number of staff by 36 before the end of the year. Also, we are working to incorporate fully the information from the loan portfolio of the liquidation funds into the national credit registry, and this has been established as a structural performance criterion under the program for end-December 2004.

7. An investment treaty has been signed with the United States, and several major foreign direct investment projects have started or will begin next year. Legislation has been passed, consistent with international best practice, to strengthen the framework for combating money laundering and the financing of terrorism. Consistent with the safeguards recommendations, one (of four) supplementary external audit of the FSBS has been completed, and we are working to implement International Financing Reporting Standards in published financial statements.

8. Financing needs are covered through June 2005 and we intend to make repurchases to the Fund on an expectations basis through end-May 2005. We request the conversion of all remaining repurchase expectations in 2005 to an obligations basis, in light of the balance of payments need arising from the large repurchase obligations in the second half of the year.

9. We are confident that the policies we have set out will ensure the continuing success of the program and justify the requested waivers and completion of the review. In support of its program, the government requests: (i) completion of the sixth review under the Stand-By Arrangement, with availability of a purchase equivalent to SDR 139.8 million; (ii) waivers of applicability for the fiscal and debt PCs for end-September, for which data would not be available by the time of the Board meeting; and (iii) waivers for the nonobservance of the end- September structural performance criterion on the completion of financial statements of the liquidation funds since their inception, the end-October structural performance criterion on completion of external financial audits of the funds, and the monthly structural performance criteria on the submission of financial statements of the liquidation funds to the Central Bank and Ministry of Finance. The waivers of nonobservance are requested on the basis that the financial statements of the funds’ since inception have been completed as a prior action for this review, audits for two of three funds have been completed and the third should be completed by the end of the year (completion of all three audits we request to reset as an end-December 2004 PC), and future semi-annual financial reports, beginning with end-December 2004, will be audited and published. The government stands ready, in consultation with the Fund, to take additional measures necessary to ensure the success of the program.

Sincerely yours,

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Mr. Rodrigo de Rato

Managing Director

International Monetary Fund

700 19th Street NW

Washington DC 20431

Attachment:

Technical Memorandum of Understanding

Table 1.

Uruguay: Quantitative Performance Criteria and Indicative Targets Under the 2004–05 Economic Program 1/

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Sources: Ministry of Economy and Finance; and Central Bank of Uruguay.

As defined in the Technical Memorandum of Understanding.

Cumulative changes from end-December 2003.

Adjusted upward/downward for changes in social security contributions, as defined in the TMU.

Adjusted upward/downward for changes in collections of the Fondos de Libre Disponibilidad (FLD), as defined in the TMU.

Adjusted upward/downward for changes in program disbursements from the World Bank and IDB, as defined in the TMU.

All maturities. The 2003 base includes all loans guaranteed by the government. For December 2003, the debt ceiling has been adjusted upwards to reflect the transfer of Brady bonds from the central bank to the government.

Adjusted upward/downward for changes in interest payments, as defined in the TMU.

Cumulative change from December 2003 average.

Table 2.

Uruguay: Structural Conditionality Under the 2004–05 Economic Program 1/

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As defined in the Technical Memorandum of Understanding.

ATTACHMENT II Technical Memorandum of Understanding

This memorandum presents the definitions of the variables included in the performance criteria and benchmarks annexed to the Memorandum of Economic and Financial Policies.

1. Cumulative primary balance of the combined public sector. The combined public sector comprises the central administration (including as defined in “Article 220” of the Constitution, Salto Grande, and the funds managed directly in the ministries (Fondos de Libre Disponibilidad), the social security system (Banco de Previsión Social, Caja Militar, and Caja Policial), the local governments (Intendencias), the public enterprises (ANCAP, ANTEL, UTE, OSE, AFE, ANP, INC, and ANCO), and the quasifiscal balance of the Central Bank (BCU). The public sector primary balance, excluding valuation adjustments, will be calculated as the overall balance measured from below the line minus interest payments measured from above the line.

  • The below the line overall balance will be measured on the basis of information provided by the BCU on: (i) the change in the nonfinancial public sector debt (defined below), including all short term debt, in foreign currency and pesos; (ii) change in net bank credit to the nonfinancial public sector in foreign currency and pesos; (iii) other nonbank financing including privatization; and (iv) the quasi-fiscal balance of the BCU (defined below). All upfront payments relating to future concessions, including the sale of mobile phone licenses, will be treated below the line.

  • The floor on the primary balance of the combined public sector will be adjusted downward (upward) by the amount by which the actual social security contributions transferred to the private pension system exceeds (falls short of) the projected amounts in the program, specified in Schedule A.

Schedule A

(In millions of Uruguay pesos, cumulative basis)

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Cumulative balance of the combined public sector (indicative target). The combined public sector balance is calculated as the sum of the primary balance of the combined public sector described in 1 and interest payments. Interest payments are defined to exclude commissions and fees.

The quasi-fiscal balance of the BCU is defined as interest earnings on gross international reserves, as defined below, and other earnings including those on other foreign and domestic assets minus operating expenses, commissions paid, and interest paid on domestic and foreign debt administered by the BCU.

Cumulative ceiling on general government expenditure applies to total (current and capital) noninterest expenditure of the central administration (includes Fondos de Libre Disponibilidad but excludes transfers to the social security system, automatic transfers to the private pension funds (AFAPs), and earmarked revenue) and the social security system (BPS). The ceiling on general government expenditure will be adjusted downward for any expenses arising from pension adjustments which exceed the increase in the legal minimum adjustment. The ceiling on general government expenditure will be adjusted upward (downward) by the amount by which the actual revenues from the Fondos de Libre Disponibildad (FLD) exceeds (falls short of) the projected amounts in the program, specified in Schedule B.

Schedule B

(In millions of Uruguayan pesos, cumulative basis)

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Cumulative changes in net domestic assets (NDA) of the BCU is defined as the difference between end-of-period monetary base and net international reserves (NIR) of the BCU as defined in paragraphs 6 and 7 below. The flow of NIR will be valued at the accounting exchange rate of Ur$31 pesos per US$1. The limit on the change in the NDA will be adjusted by the difference between actual program loan disbursements by the World Bank and IDB and scheduled loan disbursements as reflected in Schedule C:

  • The NDA ceiling at end-March, end-June, end-September, and end-December will be adjusted upward in the event of shortfalls compared with projected program loan disbursements, up to a limit of US$50 million.

  • The NDA ceiling will be adjusted downward in the event of excesses over projected program loan disbursements by their full amount.

Schedule C

(In millions of U.S. dollars, cumulative basis)

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Monetary base (indicative target) is defined as the sum of (i) currency issue; (ii) nonremunerated and remunerated peso sight deposits of BROU, BHU, private banks, and other institutions defined below at the BCU; and (iii) call deposits of BROU, BHU, private banks, and other institutions at the BCU. Other institutions include pension funds (AFAPs), local governments, public enterprises, trust funds of the liquidated banks (FRPB), investment funds, offshore institutions (IFEs), insurance companies, exchange houses, stock brokers, and the nonfinancial private sector. The monetary base excludes central government deposits held at BROU subject to a 100 percent reserve requirement. The indicative target is defined as the cumulative change calculated using the monthly averages relative to the base month average.

Cumulative changes in net international reserves (NIR) of the BCU. NIR is defined as the difference between the gross international reserves and BCU reserve liabilities. Gross international reserves include all foreign exchange assets that are in the direct effective control of the BCU and are readily available for such purposes of the BCU as intervention or direct financing of payment imbalances. Such assets may be in any of the following forms, provided that they meet the test of effective control and ready availability for use: currency, bank deposits in nonresident institutions and government securities and other bonds and notes issued by nonresidents (with a rating not below “A” in the classification of Fitch and IBCA and Standard and Poor’s or “A2” in the classification of Moody’s). In addition, holdings of SDRs or of monetary gold would be included under gross international reserves (provided they meet the test of effective control and ready availability of use) as would the reserve position in the IMF.

  • Excluded from gross international reserves are all foreign currency claims arising from off-balance sheet transactions (such as derivatives instruments), claims on residents, capital subscriptions to international financial institutions, any assets in nonconvertible currencies, claims on any nonresident Uruguay-owned institutions, or any amounts (in all components of assets, including gold) that have been pledged in a direct or contingent way. Also excluded are certificates of deposit used to constitute reserve requirements at the BCU.

  • Also excluded from gross international reserves are foreign exchange assets in the escrow account at the BCU created to provide backing to sight and savings deposits at the public banks and the closed domestic banks (the escrow account at the BCU). Funds not used to support banks will be invested in highly liquid and secure international assets to be reported daily to the IMF and will be subject to periodic special audits.

  • BCU reserve liabilities include all foreign currency-denominated liabilities of the BCU with original maturity of one year or less to residents and nonresidents, all certificates of deposit used to constitute reserve requirements against bank deposits, the use of Fund resources, any net position on foreign exchange derivatives with either residents or nonresidents undertaken directly by the BCU or by other financial institutions on behalf of the BCU.

  • For the purpose of the NIR calculation, (i) the gold holdings of the BCU will be valued at the accounting rate of US$42 per troy ounce; (ii) liabilities to the IMF will be valued at the rate of US$1.395 per SDR; (iii) gains or losses from gold swaps and other operations will be excluded; and (iv) non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S. dollars at the market exchange rates of the respective currencies as of December 31, 2003.

The NIR floor will be adjusted by the difference between actual program loan disbursements by the World Bank and IDB, and scheduled loan disbursements by the World Bank and IDB as reflected in Schedule C, in the following manner:

  • The NIR floor at end-March, end-June, end-September, and end-December will be adjusted downward in the event of shortfalls compared with projected program loan disbursements, up to a limit of US$50 million.

  • The NIR floor will be adjusted upward in the event of excesses over projected program loan disbursements by their full amount.

The nonfinancial public sector gross debt refers to the outstanding stock of gross debt in domestic and foreign currency owed or guaranteed by the nonfinancial public sector, excluding the BCU.1 Debt in the form of leases will be calculated as the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.2 The nonfinancial public sector debt ceiling will exclude the government guaranteed BHU note (estimated at US$610 million at end-December 2003) and the government guarantee covering notes issued by the fiduciary trust associated with the transfer of BROU’s NPLs (estimated at US$370 million at end-December 2003). It will include debt issued by the Megaconcesión that has a guarantee of the government.

The overall nonfinancial public sector debt ceiling will be adjusted upward (downward) by (i) the upward (downward) revisions made to the actual nonfinancial public sector gross debt stock at end-2003; (ii) the difference between the actual and projected amount of social security contributions that are transferred to private pension funds according to Schedule A, i.e., the debt ceiling will be adjusted upward (downward) by the amount that social security contributions exceed (fall short of) those specified in Schedule A; (iii) the difference between the actual and projected interest payments, specified in Schedule D for end-March, end-June, and end-September, and end-December, i.e. the debt ceiling would be adjusted upward (downward) by the amount that interest payments exceed (fall short of) those specified in Schedule D; (iv) the difference between actual and scheduled program disbursements by the World Bank and IDB as reflected in Schedule C above, i.e., the debt ceiling will be adjusted upward (downward) by the amount that program loan disbursements exceed (fall short of) those in Schedule C, and any downward adjustment will be limited to US$50 million; (v) the amount of the government guarantee on the BHU note that is called in 2004, excluding the clearance of existing arrears of BHU to BROU, i.e., the debt ceiling will be adjusted upward by the amount of new debt issued by the government to cover its guarantee (principal plus interest) on the BHU note; and (vi) the amount of the government guarantee on the transfer of BROU’s NPLs to the fiduciary trust that is called in 2004, i.e., the debt ceiling will be adjusted upward by the amount of new debt issued by the government to cover its guarantee on the schedule of principal and interest payments owed by the trust to BROU; and (vii) the debt ceiling will be adjusted upward to reflect overperformance with respect to the targets on the BCU’s net international reserves up to a limit of US$250 million.

Schedule D

(In millions of Uruguayan pesos, cumulative basis)

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The data for assessing observance of the quantitative performance criterion on net international reserves will be provided by the BCU no later than one week after each test date. The data for the assessment of all other quantitative performance criteria and indicative targets will be provided by the BCU no later than two months after each test date.

Data, reports, and other relevant information for assessing progress on bank restructuring will be provided to staff in a timely manner; in particular, financial audits and associated management letters will be shared with the Fund.

The structural performance criteria for the transfer of BROU’s Category 4 and 5 loans (end-June and end-December 2004 performance criteria) are defined to mean the transfer of nonperforming Category 4 and 5 loans.
1

A constitutional referendum was approved by a wide margin requiring that all activity in the water supply and sewerage sectors be conducted by state entities. The impact of the referendum on existing private concessions in these sectors is unclear and will require additional legal clarification.

2

In light of this performance, as previously reported, in April–July, the authorities eliminated temporary surcharges and taxes put in place during the 2002 financial crisis that will cost the budget about 0.5 percent of GDP in 2004 (1.4 percent of GDP on an annual basis). In mid- October, the tax on long-distance calls (also an emergency measure) was eliminated to level the tax environment for the state telephone company (the tax was yielding only 0.02 percent of GDP, as private carriers were avoiding the tax through internet phone technology).

3

Deposits totaling US$113 million were released between October 13 and November 5, and another US$51 million will be released in the rest of November. The remainder (US$609 million) will be released over December 2004–April 2005.

4

The reports were based on estimates rather than actual balance sheets. The shortcoming reflected mainly having to concentrate the BCU’s limited resources on audit preparation.

5

Specifically, new risk categories are being introduced, and stress tests, which already have been strengthened to include country risk and single borrower limits, are being expanded to cover exchange rate risks.

6

Public debt is defined to include all nonfinancial public sector (NFPS) debt plus all outstanding Fund credit. In previous reports, only about three-quarters of outstanding Fund credit was included in the NFPS debt. Adjusting for this change, the end-2004 projected debt stock in Country Report No. 04/327 would have amounted to 96 percent of GDP.

7

About half of the improvement reflects the lower debt ratio at end-2004, with the other half reflecting mainly the more appreciated real exchange rate assumption.

8

Research undertaken at the Fund (“Assessing Sustainability”) suggests that an external debt ratio of about 40 percent of GDP is a threshold level above which the conditional probability of a debt crisis or correction rises to about 15–20 percent, compared with 2–5 percent for debt ratios below this level. It should be noted that under the DSA financing assumptions, about 10 percent of Uruguay’s public debt would be peso-denominated by 2012.

9

The note has a minimum return guarantee equal to the depreciation of the peso relative to the U.S. dollar.

10

Of which, about US$500 million is short-term debt.

11

The current three-person directorate’s term expires in March 2005 at the time of the change in government.

12

The BCU can take long or short positions in foreign currency, but private sector demand is one-sided for purchases of U.S. dollars forward.

13

For details of this scheme, see Country Report No. 04/327, ¶20.

1/

As of August 31, 2004.

1

The term “debt” has the meaning set forth in point No. 9 of the Fund’s Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 6230-(79/140, August 3, 1979), as amended).

2

The suppliers’ contracts of ANTEL with equipment providers Ericsson and NEC, which predate the Fund’s consideration of lease contracts for programming purposes, are expensed under goods and services as rental outlays and, therefore, excluded from the definition of nonfinancial public sector gross debt for program purposes.

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Cover IMF Staff Country Reports
Uruguay: Sixth Review Under the Stand-By Arrangement and Requests for Modification of the Arrangement, Waiver of Nonobservance and Applicability of Performance Criteria, and Extension of Repurchase Expectations in the Credit Tranches—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director
Author:
International Monetary Fund
Volume/Issue:
Volume 2005: Issue 014
Publisher:
International Monetary Fund
ISBN:
9781451947625
ISSN:
1934-7685
Pages:
72
DOI:
https://doi.org/10.5089/9781451947625.002

GDP and Unemployment

Inflation and real private wage growth

Uruguay: Real Effective and Real Bilateral Exchange Rates

Sovereign risk (EMBIG Global)

Gross NonFinancial Public Sector Debt, 2001-2012

(Percent of GDP)

Actual and Target CPI
Figure 1.

Uruguay: Activity and Prices
Figure 2.

Uruguay: External Sector Indicators
Figure 3.

Uruguay: Financial and Vulnerability Indicators
Figure 4.

Uruguay: Fiscal and Monetary Indicators
Figure 1.

Investment and GDP growth (percent)
Figure 2.

Growth in output, factor inputs and TFP, 1960-2012