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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