Uruguay's banks face lengthy queues

People have been queueing since early morning

Hundreds of Uruguayans queued up at banks on Monday, after the banking system finally reopened after almost a week.

A temporary $1.5bn (£1bn) loan from the US helped calm jitters in the country and enabled the state banks to open for business once more.

I never imagined the state bank would do this to me

Niver Rocha
Merchant

Savers stood in long lines outside the banks, wearing scarves and gloves to ward off the cold South American winter.

However, many will not be able to reach their dollar savings, which have now been frozen under a new emergency law.

As a result, savers will be denied access to about $2.2bn in long-term deposits.

Most banks were planning extended hours on Monday, simply to cope with the extra demand.

Emergency measures

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

Shops are going out of business

The prospect of the law's approval helped to persuade the US to promise Uruguay the $1.5bn bridging loan to deal with its economic crisis.

However, the US 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.

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

However, Uruguayans denied access to the savings were bitter about the new law.

"I never imagined the state bank would do this to me," said Niver Rocha, a 56-year-old merchant.

He added that he had planned to use his savings to buy a store.

Closures

Several private banks opened early on Monday, ready to cope with the crowds.

They will be unaffected by the new emergency measures.

Looters took the streets on Thursday

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.

The bank closures sparked looting and riots in the country's capital, Montevideo, on Thursday, but the streets seemed quiet on Monday.

Hoping for a hand-out

The country is also expecting a visit from US Treasury Secretary Paul O'Neill, who was in Brazil on Monday for a four-day tour of Latin America.

Uruguay, Brazil and Argentina are currently negotiating with the IMF for fresh loans.

Brazil, which has the largest economy in the region, is being buffeted by fears that it could default on a $250bn public debt if a left-winger wins the October presidential election.

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.