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A Chance at Redemption

Aug 30, 2003

Uruguay was able to avoid default earlier this year, but whether it simply prolonged the inevitable or truly preserved its good name remain to be seen.

Uruguay is hardly any better off today than it was three months ago, when a bond restructuring fended off a potentially catastrophic default. The economy probably won't grow at all this year and with a small industrial sector to propel a recovery from a four-year recession, the outlook is bleak. The currency has collapsed since the government floated the peso in June 2002, while salaries have remained unchanged. Domestic consumption, already down 22% since 1998, is expected to continue declining this year. A rebound in exports, which are growing at a rate of 20%, should soften the blow but investment remains depressed, at around 9% of GDP. "We've been given a second chance because of our tradition [of honoring debt], not because we've done anything to remove the risk of a default," says Isaac Alfie, who was named economy minister August 20. "If we do nothing to show we deserved it we'll be facing the firing squad again in a few years."...

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