Uruguay: A Wrecked Country

[translated by Alfred Sola]

The banks Banco Montevideo, Caja Obrera, Comercial and next the Banco Hipotecario del Uruguay are going bankrupt, plus there are five other affected institutions

The banking holidays imposed yesterday by treasury authorities have put the country in one of the most important crises in its history, maybe just less important than the terrible night of June 27, 1973 when a group of civil and military conspirators enacted a coup d’etat.

The Central Bank’s main argument for its decision was the “continued violations of regulations by the Banco Montevideo and Caja Obrera”. In fact, what happened was that these institutions were no longer clearing the cheques issued in the banking system.

Until the banking holidays, Uruguay was losing an average of $40 million daily by depositors’ withdrawals. At that rate in six months the country lost 75% of its reserves, which on Monday were at its historic lows, getting just below $700 million.

A Uruguayan delegation, headed by OPP’s director Ariel Davrieux, is trying to obtain part of the $3 billion approved a month ago by the IMF. However, the latest political decisions have gone against Uruguay’s urgent needs and the funds are not being transferred. The last resort was directly negotiating a ‘bridge loan’ with the US government with the goal of strengthening the Uruguayan financial system.

The Bush government’s consent to the loan arrived just yesterday, too late at all accounts.

Several analysts and three high officials in the banking system consulted yesterday by Surmedia pointed out that “the banking system failure is unavoidable. There is no way to stop the funds drain except by imposing a ‘corralito’ [withdrawal restrictions], in which case Uruguay will lose the little prestige it has left as a financial center”.

They all agreed that the “banking holidays will extend at least until Friday. But if banks open next Monday, the financial reality is going to be very different”.

To begin with, “three banks are going bankrupt: Montevideo, Caja Obrera and Comercial, so we’ll have 3000 new unemployed. This is an IMF demand, to finish those banks off. But there are at least five other institutions affected. Maybe the most important one which is going down for sure is the Banco Hipotecario, something already anticipated in the Accounting Report to the parliamentary body”.

The Minister of Economy talked yesterday but said very little. He didn’t announce the banks reopening, so the holiday is assumed to continue. Other than that, a vague reference to presumed penal responsibilities of some bankers, without mentioning names.

The facts are yesterday cheques from these banks were no longer accepted. Some supermarkets didn’t accept even the credit cards issued by them. The sources consulted assumed that, together with these banks, “their credit cards will fall too”.

ATMs were also shut down, maybe a few people were lucky enough to take money out yesterday morning before the banking holiday was announced. ATMs will remain closed during this holiday, as financial authorities announced yesterday.

The financial instability will have other effects, including a partial cessation in the chain of debt payments. To begin with, UTE decided not to impose any surcharge by future non-payments while the banking holiday is on, as well as announcing that services will not be cut in case of future non-payments.

The dollar surged up to 35 pesos, with the spread between the sell and the buy prices going up to 11 pesos. But at least in one Punta del Este retail it was being sold at 51 pesos. A perfect sign of the country we live in and the times that are coming.

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