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Wednesday, 31 July, 2002, 11:21 GMT 12:21 UK
Q&A: Uruguay in financial turmoil
Uruguay's banks switched off their cash machines and closed their doors as growing numbers of customers tried to withdraw their money.

BBC News Online looks at what has gone wrong.

Why did people rush to the banks to withdraw their money?

The run on the banks actually began several months ago and was caused partly by the financial crises in neighbouring Argentina and Brazil spreading to Uruguay.

At first Argentines were making mass withdrawals of cash from their Uruguayan bank accounts.

There are close links between the two countries and many Argentines have second homes in Uruguay.

Also, Argentina had already restricted withdrawals from its own banks because of its economic problems.

Then, prompted by fears that they would lose their money, Uruguayans joined the run on the banks.

Why don't the banks want to pay out?

They cannot afford to - official figures show that 33% of deposits were withdrawn in the first six months of the year, and the rate of withdrawals has increased in July.

This means hundreds of millions of dollars have already been paid out.

The banking industry is close to collapse, and the government is trying to prevent that from happening.

Why did the banks decide to shut down cash machines and close their doors to customers?

It was meant to be a one-day pause to give the banks a breathing space but the shut down is now going to last all week.

The effect has been to make savers even more worried about any money they have in the banks.

How are the authorities going to be able to overcome the crisis?

The underlying problem is that the Uruguayan economy has suffered a three-year long recession.

And, because of the knock-on effect of Argentina's crisis, Uruguay's economy shrank by 10% in the first three months of this year.

Its currency, the peso, has halved in value against the dollar since the middle of June.

Uruguay also has billions of dollars of debts.

But the government is expecting help in the form of funds from the International Monetary Fund.


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31 Jul 02 | Business
24 Jul 02 | Business
20 Jun 02 | Business
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