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FRFI 169 October / November 2002

Crisis spreads to the ‘Switzerland of America’!

The dramatic run on the banks in Uruguay in August has put the country in nearly the same position as neighbouring Argentina.

From January to June, $5.7 billion fled Uruguay, 45% of bank deposits, much of which was Argentinean money. Central bank reserves fell $700m in the same period. In this ‘Switzerland of America’, half the 3.4 million population live in poverty and GDP has fallen since 1997 from 300m pesos to 270m in 2001. On 15 July, popular protests organised by trades unions against the privatisation of the state telephone company resulted in the death of two workers and the declaration of a state of
emergency.

On 30 July, all banks were closed. There were immediate protests across the country by the poorest and hungriest sections of the workers who attacked police stations and ransacked food and consumer goods shops. The middle classes queued in fear and anger outside the banks. In panic, the parliament passed a law copying the Argentinean freeze on bank deposits. The US ambassador announced an immediate $1.5 billion bridging loan for the private banks. To this can be added $2.3 billion from the World Bank and Inter-American Development Bank over the next two years, if the government behaves.

The financial story of Argentina is being repeated. The middle classes and the trades unions called a widely-supported general strike on 7 August against the new banking law. Better-paid workers who saved to buy homes find that the devaluation has raised the cost from 25% to 60% of their weekly wages. In September, sackings led to the call for a strike by the National Union of Transport Labourers and Workers. Whilst the immediate crisis was drowned in dollar loans the same longer-term trends of impoverishment for the masses as in Argentina are apparent. External debt has risen from $10.5 billion in 1996 to over $16 billion in August 2002 and there is no way that this can be paid except by increasing the misery of the masses.
Alvaro Michaels

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