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Uruguay made early debt payment of nearly half of its debt to the IMF
16 July 2006
The Uruguayan government announced the payment of 900 million dollars owed to the IMF, which amounts to nearly half of its debt with the institution. This decision is framed within the unindebtedness policy prevailing in the region. As in all previous cases, this announcement has prompted debate within the political system and social groups and also financial relief for the institutions.
Last July 28, Uruguay’s Economy Minister, Danilo Astori, announced the early payment of nearly half of the country’s debt to the International Monetary Fund (IMF). The early payment amounts to $900 million of a total debt of $1.98 billion. It was also informed that such debt payment accounts for liabilities of the Central Government in the amount of about $630 million and a further $300 million of the Central Bank, which were scheduled to be due in 2007.
"For the purpose of this payment we are making use on the one hand of the recent placement of a $500 million “2022 Bond” and the remainder, that is about $400 million, is being drawn down from the country’s reserves which have been accumulated, among other things, as a result of previous placements that had also been made by the country”, the Minister said.
The Minister also pointed out that three guidelines were used to carry out these transactions: exchange of expensive debt for cheaper debt; exchange of short-term debt, “since this was due next year for a bond that is placed in time in the year 2022”; and exchange of conditioned debt for sovereign debt.
This decision is framed within the unindebtedness policy prevailing in the region and the domestic policy that the uruguayan government has been implementing since the beginning of this year. Thus, by the end of February, Astori had also announced prepayments to the World Bank and IDB in the amount of approximately $436 million. Likewise, by the end of March, Uruguay decided to make an early payment of $630 million to the IMF.
Repercussions
Recent early payments made in Latin America to international financial institutions (IFIs) – Brazil, Argentina, Venezuela and Mexico, the two latter having been paid to the World Bank and IDB – have had similar repercussions. Within the political system, opposition parties expressed their opinion against this move and in some cases unfavorable views were held within the ruling party itself. Social organizations, unions and movements that work on the IFIs were also critical of this decision. However, for IFIs this brings some financial relief at a time when the legitimacy of IMF participation in the Latin American economy is in crisis.
Thus, the Fund improves its financial standing which until the end of 2005 was close to insolvency. At that time, 80 per cent of its loans were granted to only five nations: Argentina, Brazil, Indonesia, Russia and Turkey. Three of these countries have already pay off their obligations: Russia (January, 2005), Brazil and Argentina (December, 2005). Therefore, the Board is now analyzing a new strategic plan that may allow it to maintain its power over the global economy.
In the case of Uruguay, the early payment brought controversy to the ruling party, the Progressive Encounter – Broad Front (EP-FA), by representatives of the most radical sectors. Similarly, leaders of the workers’ union and a group of left-wing economists that are critical of the government’s economic policy expressed their disagreement with regards to external debt management. Many of these sectors have expressed a favorable opinion towards a renegotiation of the debt as a whole and the use of these resources for social purposes.
Meanwhile, the government underscores the benefit achieved by saving the country $15 million in foregone interest payments.
Source: Observador newspaper and Uruguayan government's website
Related information:
Uruguay to make early repayment of half of its obligations to the IMF (IMF press release)