Uruguay Calm as Banks Reopen

The promise of $1.5 billion in U.S. aid to help underpin Uruguay’s ailing banking system calmed public jitters Monday, with the streets largely quiet as banks reopened after a run had forced their closure.

Sunday’s announcement that the United States would front aid until Uruguay reached a deal with the International Monetary Fund was a welcome tonic ahead of today’s stopover by Treasury Secretary Paul H. O’Neill as he tours the troubled region.

Dragged down after neighboring Argentina’s economic meltdown and buffeted by fears that giant neighbor Brazil could default on its $250-billion public debt, Uruguay’s economy has been ravaged by a savings exodus and a dive in consumer spending.

To help avoid another panic run on banks by depositors--and a repeat of a looting spree amid Uruguay’s worst violence in a decade--legislators on Sunday approved a freeze on some deposits for as long as three years.

Nonetheless, several hundred Uruguayans waited outside banks to access their savings in this Ohio-size nation that is home to 3.4 million people. Police numbers were boosted in some parts of the capital to protect depositors carrying large amounts of cash.

“I have come to empty my account and do what everyone else is doing--stash the money under my mattress, because you can’t have confidence [in the banking system] anymore,” an elderly woman said as she waited patiently in line outside a bank in Montevideo.

Uruguay was one of just a few Latin American nations that enjoyed investment-grade status until earlier this year.

But a three-year recession has plunged one in four citizens below the poverty line and left 15.6% of the work force out of a job--a 30-year high.

The government temporarily closed all banks for most of last week to halt a run that has seen about half of deposits withdrawn this year, as many depositors had feared just the kind of deposit freeze that was implemented Sunday. Foreign reserves have plunged 80% in recent months.