The Executive Board of the International Monetary Fund (IMF) today approved a 36-month, SDR 766.3 million (about US$ 1.13 billion) Stand-By Arrangement for Uruguay. Goal is the country's economic stabilization through mid-2008 and sustainable growth while reducing vulnerabilities related to high public debt.
The approval enables the immediate release of SDR 30.7 million (about US$ 45.3 million) under the arrangement.
Following the Executive Board discussion on Uruguay, Mr. Agustín Carstens, Deputy Managing Director and Acting Chair, made the following statement:
"Uruguay's economic performance over the past three years has been very favorable. After stabilizing the economy from the severe financial crisis in 2002, the authorities' Fund-supported program achieved an impressive recovery of growth, in an environment of rising exports and international reserves, falling inflation, and sharply improving fiscal accounts. These favorable results reflect the steadfast pursuit of prudent fiscal and monetary policies, important structural reforms especially in the banking sector, and a generally supportive external environment. The smooth political transition to a new government following the 2004 elections also helped solidify market confidence in sustained domestic consensus on a core framework of stability and growth-oriented policies.
"While much has been achieved over the past three years, the task is now to sustain the recent recovery and build a lasting trend of rapid growth and improving social conditions. Although fiscal adjustment, prudent monetary policy, and banking reforms have reduced economic vulnerabilities, important weaknesses and risks remain—including a still large public debt, weaknesses in the financial sector, and obstacles to investment that hamper Uruguay's growth potential and its ability to compete in the global market place. There have also been delays with planned tax and pension system reforms, which—unless addressed—leave the fiscal accounts vulnerable to shocks and contingent costs.
"The authorities' economic strategy aims to address these challenges and create a sustained dynamic of rapid growth, declining public debt, and improving social conditions. Key to their strategy is the creation of a favorable environment for private investment, through the pursuit of prudent fiscal and monetary policies and a comprehensive growth-oriented structural reform agenda. Decisive implementation of these envisaged measures will be crucial. At the same time, the strategy places increased emphasis on ensuring that the benefits of growth are more equally shared and on addressing the lingering social dislocations from the recent crisis.
"A key plank of the authorities' strategy is continued fiscal consolidation, supported by structural fiscal reforms, while making room for a temporary social emergency program to address urgent social needs. Monetary policy will be geared to achieving a steady reduction in inflation to the low single digits, while strengthening international reserves in the context of a flexible exchange rate system. As in the fiscal area, the agenda includes important institutional reforms to strengthen the framework and instruments of monetary policy. A broad range of growth-enhancing structural reforms, supported by the World Bank and the Inter-American Development Bank, aim to strengthen the environment for private investment and productive enterprise, with emphasis on improving access to financing, competition, infrastructure, and the regulatory framework," Mr. Carstens said.