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Uruguay Orders Banks Closed Early

July 30, 2002

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MONTEVIDEO, Uruguay (AP) _ Uruguay ordered its banks closed at 1 p.m. Tuesday in an attempt to stanch the flow of capital in the midst of a growing financial crisis.

The stock market also closed early after the government earlier in the day suspended banking by Banco Montevideo and Caja Obrera for ``the non-fulfillment of regulations.″

The amount of capital in many banks has fallen dramatically in recent weeks, as hundreds of millions of dollars have been taken out of the financial system.

As rumors of a banking holiday spread, long lines began to form outside the capital’s main banks, as people sought to take as much of their savings as possible from automatic teller machines. The government later announced that ATMs would be shut down.

Meanwhile, newly appointed Economy Minister Alejandro Atchugarry met with the Central Bank president and senior bankers in an effort to work through the crisis.

Uruguay’s banking system has been badly shaken by the deep economic crisis and financial system meltdown in neighboring Argentina, which has made savers jittery and made it hard for the country to raise credit. The country is also laboring through its fourth year of recession.

At the close of last year, Uruguay’s banks had around $13 billion in reserves. That number has now fallen to just $9 billion. On Monday alone, $52 million was taken out of the banks, latest figures from the Central Bank indicated.

At the same time, the Central Bank’s dollar reserves have fallen from $3 billion to $725 million.

Meanwhile the value of Uruguay’s peso has fallen steeply, with the dollar fetching up to 35 pesos Tuesday. On June 20, when Uruguay decided to float its currency, the peso was trading at 17 to the dollar.

Uruguayan officials are currently in Washington, negotiating with the International Monetary Fund to receive the latest payout from a total of $3 billion that the agency has lent them for this year and next.

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