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To hell and back. Crisis management in a dollarized economy: the case of Uruguay

Author

Listed:
  • Julio De Brun

    (Universidad ORT (Uruguay))

  • Gerardo Licandro

    (Banco Central del Uruguay)

Abstract

The purpose of this paper is twofold. First, we would argue that, despite the fact that some elements of contagion were present, irrational behavior should not be regarded as the main explanation for the Uruguayan collapse. Financial fragility, due to liability dollarization and a misdesigned safety net, together with the strong real exchange rate depreciation and spillover effects derived from the Argentinean crisis, led to a rational simultaneous run on both the domestic banking system and the public debt (sudden stop). Secondly, we look at the crisis resolution strategies and see why the first two attempts failed despite the large backup from International Financial Institutions, and the third succeeded. We take a look at the recovery of the Uruguayan economy and point out some basic lessons to be learned from the Uruguayan experience

Suggested Citation

  • Julio De Brun & Gerardo Licandro, 2005. "To hell and back. Crisis management in a dollarized economy: the case of Uruguay," Documentos de trabajo 2005004, Banco Central del Uruguay, revised 29 Sep 2005.
    • Handle: RePEc:bku:doctra:2005004
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    File URL: https://www.bcu.gub.uy/Estadisticas-e-Indicadores/Documentos%20de%20Trabajo/4.2005.pdf
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    Cited by:

    1. Bucacos, Elizabeth, 2017. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," IDB Publications (Working Papers) 8275, Inter-American Development Bank.
    2. Mr. Luis Ignacio Jácome, 2015. "Central Banking in Latin America: From the Gold Standard to the Golden Years," IMF Working Papers 2015/060, International Monetary Fund.
    3. Elizabeth Bucacos, 2018. "Financial Conditions and Monetary Policy in Uruguay: An MS-VAR Approach," MIC 2018: Managing Global Diversities; Proceedings of the Joint International Conference, Bled, Slovenia, 30 May–2 June 2018,, University of Primorska Press.
    4. José Mourelle, 2010. "Fiscal and exchange rate policies during the Argentine and Uruguayan crisis of 2001-2002," Documentos de trabajo 2010012, Banco Central del Uruguay.
    5. Mariña Martínez-Malvar & Laura Baselga-Pascual, 2020. "Bank Risk Determinants in Latin America," Risks, MDPI, vol. 8(3), pages 1-20, September.
    6. Gerardo Licandro & Miguel Mello, 2018. "Cultural and Financial Dollarization of Households in Uruguay," Investigación Conjunta-Joint Research, in: María José Roa García & Diana Mejía (ed.), Financial Decisions of Households and Financial Inclusion: Evidence for Latin America and the Caribbean, edition 1, volume 1, chapter 11, pages 349-385, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    7. Ana Escribano & Cristina Íñiguez, 2021. "The contagion phenomena of the Brexit process on main stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4462-4481, July.

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