Uruguay on its way down

Historically known as the Latin American Switzerland, Uruguay, faces now its worst-ever financial crisis. Contaminated by its neighbours and partner in the Mercosur block, Brazil and Argentina, the government decided to suspend any bank activity until next week to stop the spectacular disappearance of deposits, which left the country’s Central Bank almost without reserves.

Reasons argued by local authorities differ from the aforesaid, as they expressed, this is a temporary measure to decide the future of two of the main banks of the country in a difficult situation: Banco de Montevideo and Caja Obrera. Both institutions owned by the Argentine financial group “Peirano” are suspected of having committed a large scale fraud against its clients.

This is the first time in 70 years, in which Uruguay had to decree a general bank holiday. As country’s economy depends on funds deposited by Argentinean and South Brazilian investors to survive, this is a very risky decision for this small State and could lead to a general lose of confidence among its richest neighbours. Nobody in Uruguay doubts this can be lethal for the country.

After bank restrictions have been imposed in Argentina in December last year, many of its citizens transferred their savings to Uruguay looking for a safer place. However, even when the Uruguayan Government assures they won’t follow Argentine steps, fears on similar measures can be heard among savers.

“This is a nightmare. It cannot happen to me again, cried Rosa Parrilli, an Argentine lawyer at the gates of the ABN AMRO Bank’s branch in the center of Montevideo. Big portions of her savings are still trapped in a bank in Buenos Aires and she does not know when she gets them back. Mrs. Parrilli had crossed the De la Plata River to withdraw her funds deposited in Uruguay warned by her son, she could lose her money again.

In the evening, the Minister of Economy of Uruguay, Mr. Alejandro Atchugarry tried to bring calm to the population at a press conference, where no questions were allowed. In a short statement the government promised that it would prevent a major financial collapse and also said that it was waiting for the results on the talks carried on in Washington to obtain fresh funds from the IMF. This additional aid would secure a good level of reserves to afford Central Bank’s obligations in the near future.

Uruguay is recognized as a historical island of stability in the region. However, the crisis of its two largest neighbours threatens this small economy with the ghost of a possible collapse.

Hernan Etchaleco PRAVDA.Ru Montevideo, Uruguay

AP photo: Bank customers wait to withdraw money from cash machines Wednesday, July 31, 2002, in Montevideo, Uruguay