Reassembling a Financial System
Uruguay's banking system crumbled after Argentines yanked their money out.The financial authorities are left with little to fix.
When Argentina collapsed in late
2001, many Argentines who had
sent their money to Montevideo
for safekeeping began pulling their
money out of Uruguay's banks. The
deposit base of Uruguay's banks soon
fell by almost half to $7 billion. The
banking sector, comprised mostly of
government banks, was already suffering
huge losses brought on by an extended
recession and a declining peso. As the
central bank deployed more and more of
its reserves last year to prop up failing
banks, crisis ensued. Confronted with a
liquidity crunch that threatened to force
the country into default, the Central
Bank ordered a week-long bank holiday
in July 2002, the first in 70 years. It also
intervened in and froze the assets of
three local banks. Two of them, Banco
Comercial and Banco Montevideo, saw
their influential owners arrested and
charged with fraudulently gutting their
banks and hiding their exposure to
Argentina. "We paid a huge price for
allowing our system to be contaminated
with so much foreign money," says Bernando...
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