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Tuesday, 23 July, 2002, 10:33 GMT 11:33 UK
Uruguay's economy minister resigns
Currency exchange shop, Monday 22 July 2002
The peso has fallen 30% since it was left to float freely
Uruguay's Economy Minister Alberto Bension has resigned after losing the support of parts of the ruling coalition government.

Former Economy Minister Alberto Bension
Mr Bension leaves behind an economy in tatters
Mr Bension had faced increasing pressure to resign, following massive outflows of capital which had caused the currency to plunge.

The board of the country's central bank - which is headed by President Jorge Battle's cousin - is also expected to be replaced.

Mr Bension leaves behind an economy in tatters and a government in crisis.

Nervous reactions

President Battle said Mr Bension's replacement would be announced on Tuesday.

"Obviously the political problems are serious," said Gabriel Oddone, an economist with the think tank Centro de Investigaciones Economicas.

"But far from helping, this muddies the waters because it creates the sensation that there is a very serious problem in the decision-making process."

"Replacing Mr Bension is very bad for the market," agreed Republica Afap fund manager, Maria Dolores Benavente.

Economic crisis

The Uruguayan economy - which is largely dependent on agriculture, tourism and banking - hasn't seen any growth since 1999.

Earlier this year the economy shrank by 10% in three months, as the effects of the Argentine crisis were felt across South America.

Uruguay is weighed down by billions of dollars of debt. Last month, the International Monetary Fund lent the country an additional $1.5bn.

Consumer spending is weak, tax revenues are low, international reserves are down 68% so far this year, the government's budget deficit stands at 4.2% and bank deposits are dwindling.

Since exchange rate controls were abandoned last month, the value of the Uruguayan peso has fallen 30%. One US dollar now buys 25 peso.

Panic withdrawals

The currency's fall followed mass withdrawals of cash by Argentines from their Uruguayan bank accounts.

The central bank, Banco Central del Uruguay, then launched an investigation into alleged illegal capital flight by the country's largest private bank, Banco Commercial.

This investigation prompted a second wave of panic withdrawals, this time by the Uruguayan people.

BBC News Online explains how Argentina suffered the near-collapse of its economy

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05 Jul 02 | Business
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07 Mar 02 | Country profiles
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