It quickly became clear
last year that Uruguay would not escape Argentina's crisis
unscathed. Argentines had long used Uruguay's offshore banking
system as a convenient refuge for their money and Argentine
vacationers are the mainstays of the country's important
tourist industry. In early 2002, Uruguay lost its investment
grade status and its banks' deposit base fell $7 billion as
Argentines pulled their money out of the country, driving
central bank reserves down to critical levels. As spreads on
Uruguay's bonds rose to 2,500 basis points, it seemed only a
matter of time before Uruguay followed Argentina into
Instead, Uruguay mandated Citigroup to lead an exchange of
its old bonds for new ones to ease its mounting debt payments.
Uruguay had $1.88 billion in debt amortizations due in 2003
alone. Horst Köhler, the International Monetary Fund's
managing director, in a statement warned that a successful
exchange was a...
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