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Plans to Assist Uruguay Accelerated - 2002-08-06

International financial institutions are accelerating plans to boost lending to Uruguay, and quite possibly Brazil, amid increasing evidence of deepening financial distress in both countries. There is new urgency concerning Latin America's fragile economies, following Washington's disclosure Sunday that it is providing emergency short-term assistance to Uruguay.

As U.S. Treasury Secretary Paul O'Neill holds emergency talks in Brazil, international financial institutions are voicing support for the economic policies of both Uruguay and Brazil and saying they are prepared to increase their financial support. The International Monetary Fund, the World Bank and the Inter-American Development Bank say they will quickly boost their lending to Uruguay which faced a run on its currency last week. The $1.5 billion U.S. loan to Uruguay will be repaid once the IMF disburses its additional aid to the country.

Peter Geraghty of Darby Overseas Investors in Washington says the most critical problem in Latin America is Brazil, whose currency has steadily lost value amid uncertainty concerning the outcome of October's presidential elections. Mr. Garaghty, a leading portfolio investor in Latin America, says Brazil deserves additional aid to help it avoid default on its foreign debt. "I think they're going to have to have support. And at the end of the day that support is not just for international investors, it is to bring some confidence back to the local markets," he says. "So that people there will believe that they are going to be given a chance to work their way through this election process."

Latin America has suffered greatly during the continuing global economic slowdown and most Latin American stock markets are down sharply this year. The problem is most acute in Argentina, which experienced a financial meltdown and debt default at the beginning of the year.

Ian Vasquez, an economist at the libertarian Cato Institute in Washington, faults the Bush administration for what he terms sending mixed signals on whether it advocates new aid for Latin America. Mr. Vasquez believes the current financial distress in Latin America is more severe than that of four years ago when Brazil was forced to devalue its currency. "Already it is more severe than it was. With Argentina in full crisis it is much more severe. Remember that the IMF did end up bailing Brazil out in 1999 as a result of that crisis. And after the bailout Brazil had a currency crisis anyway," says Mr. Vasquez. "So it could readily turn out to be a repeat of what has already occurred."

After his talks in Brazil, Mr. O'Neill will visit Uruguay and Argentina. New IMF aid for Uruguay is likely to be approved as early as next week.