How did the Uruguay exchange take place?

The government's proposal regarding what will be the rebalancing of debt has a history on the other side of the Rio de la Plata: the case of Uruguay.

Without removing capital and interest, and in a friendly manner under the umbrella of the Fund, it is the antecedent in which Hernán Lacunza 's economic team would have been inspired..

An interesting report written by the LCG consultants recalled this operation. At the beginning of the 2000s, the Uruguayan economy was losing more and more dynamism, in a context of crisis of the countries of the region which, by contagion effect, led to the closing of the capital markets. This exacerbated their vulnerability to significant financing needs, due to the concentration of maturities and a growing fiscal imbalance.

The devaluation produced after the floating exchange rate (June 2002) had a negative impact on the ability to pay Uruguayan debt, almost entirely denominated in dollars. At the end of March 2002, Uruguay received financial badistance from the IMF for a US $ 769 million, 24-month term loan, which was increased by US $ 1.5 billion over the course of the year. the second half of the year.

In 2003, the ratio of public debt rose to 112% of GDP, of which 49% in public securities and 44% in debts with international organizations. Uruguay faces solvency problems which, suspecting its ability to pay, lead to liquidity problems and a debt restructuring involving an extension of the deadlines would enable it to resolve its immediate future. At the same time, it was essential to maintain your reputation for respecting the rules so that you could quickly access the capital markets.

The debt restructuring plan in Uruguay was supported by the IMF. In designing the exchange proposal, the government deemed it essential to give rise to the consultation of a creditor committee composed of local, foreign, institutional and securities dealers.. The consultation process began in March 2003. The government made no proposals but listened to the concerns of creditors. All accepted in a fair treatment. The main purpose of the exchange was to reduce the medium-term funding gap.

The procedure used by Uruguay was new, successful and recommended as a mechanism for similar experiences. The explicit support of the IMF in the preparation of the proposal and the cooperation with the creditors' community for the design of the exchange program played a key role. In addition, this allowed the country to access the debt market through the issuance of government securities, which became its main source of funding.

How did the exchange with Uruguayan? The characteristics and results of the restructuring process are as follows:

–Very high thresholds were established for government acceptance of the exchange: with a participation of at least 90% of the total obligations traded, the government had to accept the offers of its creditors.; with a stake of between 80% and 90%, the government has reserved the right to accept the proposal; and in case of membership lower than 80%, he could return the offers to the creditors.

-Two modalities have been proposed: an extension (capital maintained, coupon and original currency changing only the term, usually extended by five years) and another relating to liquidity (it aimed to concentrate the series in a few securities to ensure greater liquidity on the secondary market).

Collective action clauses were used, which proved very useful during the voluntary exchanges.

–Membership has reached a 93% participation in all the bonds offered in exchange (99% of local bonds and 89% of external bonds),

-C was made without suspension of payments of principal and interest during the period of the offer.

-More favorite for the liquidity option. There was no debt relief.

-The the debt swap allowed Uruguay to reduce its funding gap over the next five years.

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