Uruguay 2002–3: Recovery from Economic Contagion

Steven Seelig, Gilbert Terrier and Carlos Steneri
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Carlos Steneri: Government of Uruguay

Chapter 7 in Successes of the International Monetary Fund, 2009, pp 125-146 from Palgrave Macmillan

Abstract: Abstract In early 2002, Uruguay faced a classic case of financial contagion. A traumatic economic crisis in its neighbor, Argentina, triggered withdrawals of deposits from Uruguayan banks that gradually crippled the country’s banking system and caused other severe economic problems. Within seven months, withdrawals by Argentine citizens of their deposits in Uruguayan banks and fears of Uruguayan citizens that their savings were no longer safe caused bank deposits to fall by half, an unprecedented amount in recent international experience. The Uruguayan peso was floated by mid-year, which, in the context of rapidly depleting foreign reserves, led to a sharp depreciation. As a result, bank and corporate balance sheets, in which foreign currency liabilities were high, deteriorated sharply, and the value of the stock of predominantly foreign currency-denominated public debt doubled in domestic currency terms. In turn, this raised questions about the government’s ability to honor its obligations. Economic activity contracted by over 10 percent, and unemployment soared to nearly 20 percent.

Keywords: Banking System; Public Debt; Bank Deposit; International Capital Market; Banking Crisis (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23949-4_7

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DOI: 10.1057/9780230239494_7

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