Abstract
This paper assesses Uruguay’s Seventh Review Under the Stand-By Arrangement and Request for Waiver of Nonobservance of Performance Criterion. The favorable program results reflect prudent macroeconomic policies and important banking reforms, although progress with other structural reforms was less satisfactory. The outlook for 2005 is favorable. Growth will likely exceed 5 percent, and inflation is expected to fall to 5½–6½ percent. A strong foundation has been laid for continued fiscal consolidation. The pending reforms under the current program will need to be taken up by the new government.
1. Since the issuance of the staff report, additional information on recent developments and policy measures has become available. This information does not alter the thrust of the staff appraisal.
2. Prior actions. As explained in the staff report, there were two prior actions for this review.
The provision of final fiscal and public debt data for end-2004 has been done and incorporated in the attached revised Table 3 of the staff report. In line with the preliminary assessment, the quantitative performance criteria on the primary fiscal surplus and the public debt were observed. The primary surplus (below-the-line) ended the year at 3.4 percent of GDP (above-the-line data shows a primary surplus of 3.6 percent of GDP). Taking into account the adjustors for higher-than-programmed transfers to the private pension funds, the margin relative to the PC was U$757 million (about 0.2 percent of GDP).
The incorporation of data on borrowers with nonperforming loans (NPL) held by the liquidation funds into the credit registry of the Banking Superintendency, however, has not been fully completed. The staff of the superintendency has been working expeditiously on this matter, while taking care to avoid including any borrower who is performing. So far, the credit information transferred covers 93 percent of the liquidation funds’ nonperforming borrowers, or 92 percent of the face value of their NPLs. The information transferred covers those borrowers who have not made any payment on their debts since the inception of the liquidation funds, but the authorities are still in the process of verifying information on some debtors who have made payments to ensure that performing debtors are not erroneously included in the credit registry. The authorities expect the transfer to be completed by May 2005.
3. Nothwithstanding the delay in fully completing the second prior action, staff supports the authorities’ request to proceed with the seventh review. The bulk of relevant creditor information has been transferred to the credit registry, and the authorities are committed to completing the transfer in the near future.
4. Political developments. The incoming government has reached agreement with the opposition (Colorado and Blanco) parties on broad principles that will guide economic policy during its term in office, including continued fiscal discipline, maintainance of the current monetary and exchange rate policy frameworks, and the need for structural reforms to improve the investment climate. Staff welcomes the agreement as an important step in building a consensus on a strategy for further fiscal consolidation and reforms to boost growth in a lasting way, and hopes that it can be sustained and translated into policy actions in the coming months.
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program 1/
(In percent of GDP, unless otherwise indicated)
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program 1/
(In percent of GDP, unless otherwise indicated)
| March 31, 2004 | June 30, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Target | Adj. Target | Actual | Margin (+) | Target | Adj. Target | Actual | Margin (+) | |
| A. Quantitative performance criteria | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector primary balance (cumulative floor) 2/ 3/ | 1,897 | 1,722 | 4,200 | 2,478 | 3,605 | 3,379 | 7,536 | 4,157 |
| 2. General government noninterest expenditure (cumulative ceiling) 2/ 4/ | 10,016 | 10,254 | 9,581 | 673 | 19,757 | 19,757 | 19,603 | 154 |
| 3. Change in the net domestic assets of the BCU (ceiling) 2/ 5/ | 1,480 | 3,030 | -5,045 | 8,075 | -750 | 800 | -7,440 | 8,240 |
| (In millions of U.S. dollars) | ||||||||
| 4. Net international reserves of the BCU (- decrease) (cumulative floor) 2/ 5/ | -30 | -80 | 140 | 220 | 50 | 0 | 201 | 201 |
| 5. Nonfinancial public sector gross debt (ceiling) 3/ 6/ | 8,853 | 8,810 | 8,780 | 30 | 8,864 | 8,797 | 8,788 | 9 |
| B. Indicative targets | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector overall balance (cumulative floor) 2/ 3/ 7/ | -5,171 | -5,445 | -2,967 | 2,478 | -7,848 | -8,010 | -3,853 | 4,157 |
| 2. Change in the monetary base (ceiling) 8/ | 550 | 550 | -705 | 1,255 | 800 | 800 | -1,209 | 2,009 |
| September 30, 2004 | December 31, 2004 | |||||||
| Target | Adj. Target | Actual | Margin (+) | Target | Adj. Target | Actual | Margin (+) | |
| A. Quantitative performance criteria | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector primary balance (cumulative floor) 2/ 3/ | 10,238 | 10,216 | 12,004 | 1,788 | 12,525 | 12,444 | 13,201 | 757 |
| 2. General government noninterest expenditure (cumulative ceiling) 2/ 4/ | 30,592 | 30,700 | 29,956 | 744 | 41,525 | 41,742 | 40,936 | 806 |
| 3. Change in the net domestic assets of the BCU (ceiling) 2/ 5/ | -550 | 1,000 | -7,552 | 8,552 | -3,830 | -2,280 | -12,016 | 9,736 |
| (In millions of U.S. dollars) | ||||||||
| 4. Net international reserves of the BCU (- decrease) (cumulative floor) 2/ 5/ | 50 | 0 | 187 | 187 | 180 | 130 | 438 | 308 |
| 5. Nonfinancial public sector gross debt (ceiling) 3/ 6/ | 9,035 | 8,921 | 8,842 | 79 | 9,040 | 8,977 | 8,934 | 43 |
| B. Indicative targets | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector overall balance (cumulative floor) 2/ 3/ 7/ | -9,040 | -8,280 | -6,492 | 1,788 | -11,384 | -10,231 | -9,474 | 757 |
| 2. Change in the monetary base (ceiling) 8/ | 1,000 | 1,000 | -1,755 | 2,755 | 1,750 | 1,750 | 628 | 1,122 |
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program 1/
(In percent of GDP, unless otherwise indicated)
| March 31, 2004 | June 30, 2004 | |||||||
|---|---|---|---|---|---|---|---|---|
| Target | Adj. Target | Actual | Margin (+) | Target | Adj. Target | Actual | Margin (+) | |
| A. Quantitative performance criteria | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector primary balance (cumulative floor) 2/ 3/ | 1,897 | 1,722 | 4,200 | 2,478 | 3,605 | 3,379 | 7,536 | 4,157 |
| 2. General government noninterest expenditure (cumulative ceiling) 2/ 4/ | 10,016 | 10,254 | 9,581 | 673 | 19,757 | 19,757 | 19,603 | 154 |
| 3. Change in the net domestic assets of the BCU (ceiling) 2/ 5/ | 1,480 | 3,030 | -5,045 | 8,075 | -750 | 800 | -7,440 | 8,240 |
| (In millions of U.S. dollars) | ||||||||
| 4. Net international reserves of the BCU (- decrease) (cumulative floor) 2/ 5/ | -30 | -80 | 140 | 220 | 50 | 0 | 201 | 201 |
| 5. Nonfinancial public sector gross debt (ceiling) 3/ 6/ | 8,853 | 8,810 | 8,780 | 30 | 8,864 | 8,797 | 8,788 | 9 |
| B. Indicative targets | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector overall balance (cumulative floor) 2/ 3/ 7/ | -5,171 | -5,445 | -2,967 | 2,478 | -7,848 | -8,010 | -3,853 | 4,157 |
| 2. Change in the monetary base (ceiling) 8/ | 550 | 550 | -705 | 1,255 | 800 | 800 | -1,209 | 2,009 |
| September 30, 2004 | December 31, 2004 | |||||||
| Target | Adj. Target | Actual | Margin (+) | Target | Adj. Target | Actual | Margin (+) | |
| A. Quantitative performance criteria | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector primary balance (cumulative floor) 2/ 3/ | 10,238 | 10,216 | 12,004 | 1,788 | 12,525 | 12,444 | 13,201 | 757 |
| 2. General government noninterest expenditure (cumulative ceiling) 2/ 4/ | 30,592 | 30,700 | 29,956 | 744 | 41,525 | 41,742 | 40,936 | 806 |
| 3. Change in the net domestic assets of the BCU (ceiling) 2/ 5/ | -550 | 1,000 | -7,552 | 8,552 | -3,830 | -2,280 | -12,016 | 9,736 |
| (In millions of U.S. dollars) | ||||||||
| 4. Net international reserves of the BCU (- decrease) (cumulative floor) 2/ 5/ | 50 | 0 | 187 | 187 | 180 | 130 | 438 | 308 |
| 5. Nonfinancial public sector gross debt (ceiling) 3/ 6/ | 9,035 | 8,921 | 8,842 | 79 | 9,040 | 8,977 | 8,934 | 43 |
| B. Indicative targets | ||||||||
| (In millions of Uruguayan pesos) | ||||||||
| 1. Combined public sector overall balance (cumulative floor) 2/ 3/ 7/ | -9,040 | -8,280 | -6,492 | 1,788 | -11,384 | -10,231 | -9,474 | 757 |
| 2. Change in the monetary base (ceiling) 8/ | 1,000 | 1,000 | -1,755 | 2,755 | 1,750 | 1,750 | 628 | 1,122 |
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program (concluded)
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.
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program (concluded)
| Structural Conditionality | Date | Status |
|---|---|---|
| A. Structural performance criteria | ||
| Completion of the transfer to the BROU fiduciary trust of all new and remaining Category 4 and 5 loans. | end-Dec. | Observed |
| Incorporate into the credit registry of the Banking Superintendency the information on nonperforming borrowers in the liquidation funds whose loans were held by the liquidation funds. | end-Dec. | Prior action for seventh review |
| Complete semiannual financial reports of the liquidation funds for end-December 2004 for auditing and publication. | end-Jan. | Observed |
| Government to ensure timely service of BHU note to BROU. | Continuous | Observed |
| B. Structural benchmarks | ||
| Establishment of a Large Taxpayers Unit at the Tax Administration Department (DGI). | end-Dec. | Not observed. |
| Approval by Congress of the reform of the pension funds for the police and the military. | end-Dec. | Not observed. |
| Approval by Congress of the reform of the pension funds for bank employees. | end-Dec. | Not observed. |
| Asset manager to reach 700 payment agreements approved by its creditor committee. | end-Jan. | Observed |
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.
Uruguay: Quantitative Performance Criteria, Indicative Targets, and Structural Conditionality Under the 2004–05 Economic Program (concluded)
| Structural Conditionality | Date | Status |
|---|---|---|
| A. Structural performance criteria | ||
| Completion of the transfer to the BROU fiduciary trust of all new and remaining Category 4 and 5 loans. | end-Dec. | Observed |
| Incorporate into the credit registry of the Banking Superintendency the information on nonperforming borrowers in the liquidation funds whose loans were held by the liquidation funds. | end-Dec. | Prior action for seventh review |
| Complete semiannual financial reports of the liquidation funds for end-December 2004 for auditing and publication. | end-Jan. | Observed |
| Government to ensure timely service of BHU note to BROU. | Continuous | Observed |
| B. Structural benchmarks | ||
| Establishment of a Large Taxpayers Unit at the Tax Administration Department (DGI). | end-Dec. | Not observed. |
| Approval by Congress of the reform of the pension funds for the police and the military. | end-Dec. | Not observed. |
| Approval by Congress of the reform of the pension funds for bank employees. | end-Dec. | Not observed. |
| Asset manager to reach 700 payment agreements approved by its creditor committee. | end-Jan. | Observed |
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.
Montevideo, Uruguay
February 18, 2005
Dear Mr. de Rato:
As described in our letter of February 9, 2005, we have been working to incorporate the information on nonperforming borrowers in the liquidation funds (whose loans were held by the liquidation funds) into the credit registry for the Banking Superintendency. Completion of this action is a prior action for the completion of the Seventh Review under the Stand-by Arrangement.
As of today, we have been able to transfer information covering 93 percent of the nonperforming borrowers, accounting for 92 percent of the face value of nonperforming loans to the credit registry. The information transferred covers those borrowers who have not made any payment of their debts since the inception of the liquidation funds. However, we are still in the process of verifying information on debtors who have made payments, and this process has taken longer than anticipated as we need to ensure that performing debtors are not erroneously included in the credit registry.
While the prior action, therefore, has not been fully completed, the key debtors (those who have not made any payments) are in the registry, which is the most important element for bolstering creditor discipline. Therefore, we request to proceed with the Seventh Review under the Stand-by Arrangement. Of course, the superintendency of banks and the central bank remain fully committed to transferring the remaining information on nonperforming creditors to the credit registry. We expect this to be completed by May 2005.
| Sincerely yours, | |
| /s/ | /s/ |
| Julio de Brun President Central Bank of Uruguay |
Isaac Alfie Minister of Economy and Finance Oriental Republic of Uruguay |
| Sincerely yours, | |
| /s/ | /s/ |
| Julio de Brun President Central Bank of Uruguay |
Isaac Alfie Minister of Economy and Finance Oriental Republic of Uruguay |
Mr. Rodrigo de Rato
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, DC 20431