MONTEVIDEO, Uruguay, Nov. 18 (UPI) -- Top Uruguayan economists, including a former central bank president, said Monday the government must renegotiate the country's debt, as the drumbeat of economic disaster continues in Latin America.
Tiny Uruguay -- with 3.5 million people and $11 billion in debt -- has been trying to recover from the worst economic crisis in its history.
The country's debt amounts to 85 percent of gross domestic product, which itself has fallen 11 percent this year. Inflation for 2002 is now at 40 percent.
While there has been no official talk of renegotiating debt from government circles, influential economists and policy-makers of all political stripes support the move.
The debts Uruguay faces "exceed the possibilities of payments" the country can make, said Ramon Diaz, a former president of the Uruguay's central bank, at a news conference attended by noted economists Monday.
Diaz said renegotiation was inevitable and he suggested that the government of President Jorge Batlle set about restructuring its debt "as soon as possible."
Uruguay, slightly smaller than Washington state, was hit hard by last December's default in neighboring Argentina and by Brazil's ongoing economic turbulence.
Uruguay sends 50 percent of its exports to those two neighboring countries.
The downturn in Argentina hit Uruguay particularly hard as many Argentines have bank accounts in Uruguay. When the Argentine government placed a freeze on its citizens' accounts last year, Argentines began withdrawing money from their Uruguayan accounts in droves, sparking a run on banks.
Uruguay devalued its currency in June, which added to its debt burden, much of which is denominated in dollars.
The United States and the International Monetary Fund came to Uruguay's aid, the former providing an emergency $1.5 billion bridge loan in August and the latter shortly thereafter increasing the country's credit line.
But in spite of that show of confidence, the economists gathered Monday said the debt dynamics of Uruguay only point toward the need of renegotiating the debt.
In 2003, Uruguay will have about $2 billion coming due in debt payments while GDP is expected to contract by 4.5 percent, according to the government.
Another $1.2 billion is due in 2004 and $1.5 billion matures in 2005.
For the economist Walter Cancela, the debt "isn't payable the way it is programmed, at least from 2004 onward. The studying of the possibilities (on renegotiating) should already have started."
"But I don't think that a polling among the creditors has begun, if I have to go by the declarations made" by the government, Cancela said.
"In any event, if renegotiation is (being discussed), it is in the worst manner, because it should be a transparent process that is agreed upon by all of Uruguay," he said.
Cancela noted that Uruguay has the funds to meet its debt obligations in 2003 -- barring any new disaster, such as a default in Brazil. However, after that year it looks unlikely the country can make its payments.
For that reason, renegotiation is "necessary and viable" as Uruguay's creditors know that the country "has the will to pay but doesn't have the means," Cancela said.
Thus, he reasoned, creditors would be more willing to negotiate.
Diaz seconded that idea, saying that anything other than outright default is better for Uruguay in the long run, as a default would cut the country off from international credit for years.
The economist Michele Santo said Monday that the debt scenario is more complicated now than in 1991, when Uruguay underwent a successful debt buy-back program under the guise of the Brady Plan created by former U.S. Treasury Secretary Nicholas Brady.
Unlike 1991, when most of the debt was held by a few banks, now nearly 42 percent of Uruguay's debt is in the hands of thousands of private investors who bought government bonds, Santo said.
Those sort of creditors "are not easy" to deal with, Santo said, and it is imperative that the government begin the process now.
Santo went on to note that the renegotiation would be aided if the government worked to change public perception of its ability to stay solvent -- in other words, acting even more of a pauper than it is.
"The government has to rapidly define how it is going to pay the debt in 2003 and 2004" if there is any hope of avoiding default, Santo said.