Uruguay - Banking and securities

The Bank of the Republic (Banco de la República Oriental del Uruguay-BRDU), established in 1896, is a state bank with a government-appointed director. It operates as both a public and a private bank. It is the financial agent of the government; it also acts as an autonomous agency and, as a commercial bank, makes loans and receives deposits. It participates in determining financial policies and the allocation of foreign exchange for imports. One of its main functions is to provide rural credit.

The 1966 constitutional revision created a Central Bank (Banco Central del Uruguay-BCU), which is responsible for currency circulation, thus permitting the Bank of the Republic to concentrate on public and private credit. The third state bank is the Mortgage Bank (Banco Hipotecario del Uruguay-BHU). There are 21 private banks operating in Uruguay, the three public banks, 8 financial institutions, 12 offshore banks, and six savings and loans organizations.

In the early 1980s, economic recession produced a flood of bad debts, prompting the BCU to introduce a refinancing scheme in 1983, under which it took over the non-performing loans of some financial institutions. This improved the liquidity of the financial system, but shifted the burden onto public finances. In 1999, the IMF criticized Uruguay's two large public banks as being less efficient and profitable than private banks, calling for banking reforms.

A policy of regular minidevaluations was introduced in mid-1975; currency stability was established in the late 1970s, but in November 1982, the peso, regarded as overvalued, was allowed to float freely. The peso has fallen against the dollar since that time. As of 1999, about 90% of the private sector's deposits in the banking system were dollar-denominated, and 75% of the overall credit to the private sector was in dollars. Most purchases were made in dollars. Net foreign reserves equaled $2.43 billion at the end of 1998.

The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.0 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $11.1 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 22.1%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 71.66%.

The Montevideo Stock Exchange is supplemented by its Internet based partner, the Bolsa Electrónica de Valores (BEVSA). The number of firms raising risk capital through the stock exchange is very small, and only 19 companies are quoted on it. In 1999, practically no shares were traded in the stock market.