Journal Issue

Uruguay in Solid Recovery, but Work to Reduce Vulnerabilities should Continue

International Monetary Fund. External Relations Dept.
Published Date:
August 2006
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Since its 2002 crisis, Uruguay’s economy has recovered, thanks to a supportive external environment, strong macroeconomic policies, and ambitious structural reforms, the IMF said in its most recent economic review. Real GDP is now above the prerecession level, inflation has declined rapidly, and financial soundness indicators have improved markedly. Moreover, strong export growth and good capital market access have contributed to an improvement in Uruguay’s external position. In August, Uruguay advanced payment of its obligations to the IMF falling due in 2007, as part of a cash management operation, halving its outstanding obligations. This is a reflection of a strengthened external position and another measure of the success of the authorities’ program, Managing Director Rodrigo de Rato said.

Executive Directors stressed that strong primary fiscal surpluses have been central to the authorities’ success in helping reduce the ratio of public debt to GDP and boost market confidence. Notwithstanding the strong performance, medium-term vulnerabilities remain, including the still-high and dollarized public debt and large gross financing needs. Also, the banking system remains highly dollarized, banking intermediation is still well below precrisis levels, and deposits are mostly at short maturities.

Real GDP growth (percent)–
Consumer price index (period average)
Public sector primary balance (percent of GDP)
Gross official reserves (million dollars)7722,0872,5123,4383,234
Data: Central Bank of Uruguay, Ministry of Finance, and IMF staff estimates.

Directors also cautioned that inflation risks have increased in 2006; they recommended that the authorities adjust monetary policy as needed to meet inflation objectives. They also highlighted the significant progress made in addressing weaknesses of the financial sector. Many Directors welcomed the proposed new law aimed at increasing central bank autonomy as a significant step to underpin the commitment to low inflation.

Directors stressed that sustained high growth will be critical to improving social conditions, ensuring fiscal and debt sustain-ability, and supporting a healthy financial system. They welcomed the authorities’ pro-growth agenda, encouraged them to continue improving the investment climate, and supported policies aimed at furthering trade expansion and diversification. Directors stressed the importance of the impending tax reform, which will improve the fairness and efficiency of the tax system. They also encouraged the authorities to implement reforms to improve the effectiveness of public spending and public enterprises.

For more information, please refer to IMF Public Information Notices Nos. 06/88 (Ireland), 06/98 (Macedonia), 06/84 (El Salvador), and 06/85 (Uruguay) on the IMF’s website (

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