Three historical lessons that the Uruguayan economy left us

Three historical lessons that the Uruguayan economy left us

John B. Taylor was always from Peñarol: the importance of political ties

In 2002, during the government of Jorge Batlle, Uruguay was looking for a way out of the worst financial insolvency crisis that it had to go through, motivated by a recession that had been dragging on since 1998, a fierce exchange rate run and the simultaneous explosion of hundreds of foot-and-mouth disease outbreaks throughout the national territory.

Highly questioned, the then Minister of Economy and Finance, Alberto Bensiónresigned from his position on July 24, being succeeded by Alejandro Atchugarryin an attempt to Colorado Party to rearticulate the government coalition they shared with the National Party and look for bridges in common with the Progressive Meeting-Broad Frontin order to sustain an increasingly compromised institutional situation.

From the Progressive Meeting-Frente Amplio, led by the then party president, Tabare Vazquezthey recommended that Uruguay gave up on the intention of honoring its debt commitments, but the government did not want to give in on this issue. Paradoxically, the main economic reference of that opposition, Danilo Astoriwas in tune with the actions of the official economic team.

After the Argentina will enter default In 2001, evaluations of the International Monetary Fund (IMF) They turned towards a position of greater suspicion when considering the possibilities of South American countries to face their sovereign debt payments. The IMF representative for the Western Hemisphere, the Chilean Eduardo Aninatdenied providing funds to the Uruguay to face the bank run.

This attitude was not well received by the Uruguayan government, which began to move chips to higher levels. President Batlle himself, who maintained a good relationship with his then American counterpart, George W. Bushgot down to work and spoke on the phone with the Uruguayan ambassador to the United States, Hugo Fernández Faingoldso that he could notify the North American authorities that “the matter in Uruguay It is not an issue of pesos”, but rather it was “an institutional issue”, since “what was going to fall were not the banks, but democracy.”

At that time, after a long series of fruitless negotiations with the IMF and the intransigence of Aninat, the Uruguayan economic team was preparing to abandon Washington D.C. with empty hands, but on the way to the embassy to look for the suitcases, they received a call from Fernández Faingold who warned them: “(John Brian) Taylor It is Penarolcome back, we will meet at 6:00 p.m.,” according to the former Minister of Economy and Finance, Isaac Alfie.

With this, Fernández Faingold let the delegation know that the Undersecretary of the Treasury for International Affairs, John B. Taylor, would favor Uruguayan interests in the negotiations. On August 5, the US ambassador to Uruguay, Martin Silverstein, announced the disbursement of an extraordinary bridge loan of 1.5 billion dollars. “In difficult times, friends deserve more than words, actions speak louder than words,” the diplomat said then.

Taylor had express orders from Bush to find a solution to the lack of liquidity in the Uruguayan banking system, so USA made an exception to its policy of not granting credits bilaterally. The political affinity between Batlle and the American president helped decompress, at least for a few more days, a climate that was of maximum tension. Taylor was awarded the Medal of the Eastern Republic of Uruguay in 2005.

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Jorge Batlle and George W. Bush in the Oval Office of the White House.


Cure is better than prevention: the 5,000 peso bill

The Batlle government’s difficulties did not end with the arrival of dollars from the north, but negotiations continued tense with the IMF, but also at the parliamentary level with the opposition. They were quite unstable until a change of board of directors in the multilateral organization began to take effect: the arrival of the Indian Anoop Singh as director of the Department of the Western Hemisphere.

With an exchange rate that shot up almost 90% throughout 2002, going from 14,328 pesos at the beginning of January to 27,220 pesos at the end of December, the country still had a couple of years of financial uncertainty to go through. According to data from world BankIn 2002, annual inflation reached 14% and 19.4% in 2003. In 2004, during the last year of Batlle’s government, it fell to 9.2%.

Due to the high figures, the fear of an inflationary spiral was still in the air and, according to Numista, a website specialized in numismatics, the Central Bank of Uruguay (BCU) created a 5,000 peso bill with the face of the first constitutional president and Colorado leader, José Fruitful Riverawaiting for what could happen.

However, by then Uruguay The worst part of the storm had already overcome and the economy, driven by the price of commodities, would enter a clear recovery. In 2005, accumulated inflation fell to 4.7% and the high nominal and real value of Rivera’s projected bill made it unnecessary and condemned it to oblivion.

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Rivera bill specimen.

Rivera bill specimen.

Photo: Numista

The Martians knew that Uruguay would devalue

In 1981, the Argentine dictatorship had to devalue the currency and abandon the “exchange table” established by the then Minister of Economy, José Alfredo Martínez de Hoz. It consisted of a programmed devaluation scheme, similar to one that existed in the Uruguay starting in November 1978.

Due to how linked the economy was to that of the brother country and its decisions, in the face of high inflation, in 1982 the Uruguayan dictator Gregorio Álvarez if the same thing could happen, to which he responded that “a Martian had invented that news.” The military man went further, and in a speech in the middle of that same year, he pointed out that “only the Martians believe that there will be devaluation in the Uruguay“.

In November 1982 the Uruguayan board broke and the dollar flew from 13.81 New Pesos to 20 New Pesos to later stabilize at 33 New Pesos, hitting savers and national companies squarely. Álvarez’s phrase was as infamous as his mandate, and the economy, indomitable, paved its own path.

Source: Ambito

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