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Monday, 5 August, 2002, 15:16 GMT 16:16 UK
Uruguay's banks to open after US bailout
Police block a street while people wait for food to be donated, outside of Montevideo
Police are out on the streets keeping order
Uruguay's banks are set to reopen on Monday morning almost a week after the government closed their doors in the hope of averting a financial collapse on the scale of neighbouring Argentina.

Most are planning extended hours, simply to cope with the mass of Uruguayans who simply need to conduct the normal banking business left over from last week - such as cashing their end-of-month paycheques.
Alejandro Atchugarry, economy minister
Atchugarry is hoping for a loan from the IMF

Over the weekend, legislators passed a law blocking access for three years to hard currency held in high-interest accounts with the country's two state banks.

The prospect of the law's approval helped persuade the United States to promise Uruguay a $1.5bn (1m) emergency loan to help it deal with its economic crisis and enable the reopening to go ahead.

This will be the first time that President George W Bush's administration has agreed to provide direct support to a country in economic trouble.

Even so, Washington DC has made it clear that the loan is intended only to tide Uruguay over until the International Monetary Fund (IMF) comes up with its own loans.


Uruguay shut down its banking system last Tuesday in an attempt to head off a dangerous run on the banks.

Mass withdrawals of US dollars in the face of the worst recession in history drained the country's coffers, shrinking its reserves from $3bn last year to just $655m now.

The run raised the fear that Uruguay could suffer the same fate as Argentina, where mismanagement followed by debt default and the devaluation of the peso has left millions on the breadline and the economy in tatters.

Nevertheless, the bank closures sparked looting and riots in the country's capital, Montevideo, on Thursday.

In one case, about 50 people equipped with large black refuse sacks ransacked a self-service shop shouting "We steal to eat", reported local newspaper La Republica.

Hoping for a hand-out

The US Treasury Secretary Paul O'Neill has arrived in Brazil, with plans to visit Uruguay and Argentina later in the week.

Police detain youths who were attempting to loot a supermarket
Looters took the streets on Thursday
All three countries - along with Peru, Ecuador and Colombia - are currently negotiating with the IMF for fresh loans.

Brazil is being buffeted by fears that it could default on a $250bn public debt if a left-winger wins the October presidential election.

"Clearly there's a regional crisis," said Michael Mussa, senior fellow at the Institute for International Finance and the IMF chief economist from 1991-2001.

"All of the important countries with the exception of Chile are either in deep (trouble) or are headed rapidly in that direction."

Analysts said the region's problems began when Brazil, Argentina and other countries failed to reduce their debt levels during years of growth in the 1990s.

Now as investors rush to sell off Latin American debt, the countries are being plunged into a vicious cycle as it becomes more expensive to borrow money.

The BBC's Louise Cooper
"President Bush now seems to be sending the message that he wants to help South America."

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Analysis & background

Argentina in turmoil


See also:

02 Aug 02 | Business
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27 Jul 02 | Country profiles
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