The Uruguay banking crisis was a major banking crisis that hit
Uruguay
Uruguay (; ), officially the Oriental Republic of Uruguay ( es, República Oriental del Uruguay), is a country in South America. It shares borders with Argentina to its west and southwest and Brazil to its north and northeast; while bordering ...
in July 2002. In this, a massive
run on banks by
depositors (most of them from neighboring Argentina) caused the government to freeze banking operations. The crisis was caused by a considerable contraction in Uruguay's economy and by over-dependence on
Argentina
Argentina (), officially the Argentine Republic ( es, link=no, República Argentina), is a country in the southern half of South America. Argentina covers an area of , making it the second-largest country in South America after Brazil, th ...
(tourism, and construction boom), which experienced
a strong phase of an economic meltdown itself in late 2001. In total, approximately 1/3 of the country's deposits were withdrawn and five financial institutions were left insolvent.
According to many sources, the banking crisis could have been avoided if Uruguayan authorities had properly regulated their banks. The
Central Bank of Uruguay
The Central Bank of Uruguay ( es, Banco Central del Uruguay, BCU) is the central bank of the Uruguay.
History
The Central Bank of Uruguay was established on July 6, 1967 as an autonomous state entity ( es, Ente Autónomo), with the passing of t ...
(BCU) had trusted international banks to regulate themselves properly and was too lenient and slow in responding to the crisis.
Banco Comercial del Uruguay
In 1990, Chemical Overseas Holdings, Inc. (a subsidiary of
JPMorgan Chase
JPMorgan Chase & Co. is an American multinational investment bank and financial services holding company headquartered in New York City and incorporated in Delaware. As of 2022, JPMorgan Chase is the largest bank in the United States, the ...
) together with
Dresdner Bank
Dresdner Bank AG was a German bank and was based in Frankfurt. It was one of Germany's largest banking corporations and was acquired by competitor Commerzbank in May 2009.
History
19th century
The Dresdner Bank was established on 12 Novemb ...
Latinamerika and
Credit Suisse First Boston acquired the
Banco Comercial del Uruguay (BCU), one of that country's oldest and largest national banks. Over time, Uruguay developed into a large offshore banking center for Argentina and
Brazil
Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
, largely as a result of its lax banking laws and the predominant view among Argentines that Uruguay was a stable place for their savings.
As a result of the banking crisis, some US$800 million went missing from the BCU alone. In the end, five financial institutions failed and hundreds of thousands of depositors in Uruguay, Argentina, and Brazil were left in dire economic straits after seeing their bank accounts literally disappear.
In January 2005, the Paris-based
International Chamber of Commerce ruled that the Uruguayan government would have to pay US$120 million to JPMorgan Chase & Co., Dresdner Bank AG, and Credit Suisse First Boston for failing to maintain the solvency of the BCU.
The crisis underscores the three banks’ difficulty in managing risk in developing countries and dealing with local partners during a time of financial crisis. As a result, a class of BC's former depositors is suing the three international banks and the individual directors they appointed to BC's board to recover the losses suffered as a result of the bank's collapse.
Political crisis management
President
Jorge Batlle appointed one of his most respected politicians,
Alejandro Atchugarry
Alejandro Víctor Washington Atchugarry Bonomi (31 July 1952 in Montevideo – 19 February 2017 in Montevideo) was a Uruguayan lawyer and politician.
He was Minister of Economics and Finance during the most difficult period in Jorge Batlle ...
, as Minister of Economics and Finance, a decision which proved vital in the reestablishment of fundamentals for economic recovery.
Atchugarry, ten years after the crisis
See also
* South American economic crisis of 2002
*1998–2002 Argentine great depression
The Argentine Great Depression was an economic depression in Argentina, which began in the third quarter of 1998 and lasted until the second quarter of 2002. It followed the fifteen years stagnation and a brief period of free-market reforms. ...
*Latin American debt crisis
The Latin American debt crisis ( es, Crisis de la deuda latinoamericana; pt, Crise da dívida latino-americana) was a financial crisis that originated in the early 1980s (and for some countries starting in the 1970s), often known as ''La Décad ...
References
External links
Banking crisis grips Uruguay (BBC News)
(''The Banker
''The Banker'' is an English-language monthly international financial affairs publication owned by ''The Financial Times'' Ltd. and edited in London, United Kingdom. The magazine was first published in January 1926 through founding Editor, Brend ...
'')
Bank Frauds Highlight Lax Controls, Possible Collusion by Officials (Costa Rica Daily Online News Magazine)
*[https://archive.today/20130114164728/http://llerena.com.ar/english/news/inthenews/jgr/jgr-04-10-02.html Banks risk legal action through involvement with Argentine Rohm brothers (Latin Lawyer: Argentina)]
Banco Comercial: Creditor Wins First Round in Legal Battle (Bankrupt.com - Scroll down to find URUGUAY)
{{Financial crises
Economic history of Uruguay
Banking crisis
Uruguay banking crisis
Banking crises
Jorge Batlle