Bush to provide aid to Uruguay

WASHINGTON -- The Bush administration will provide an emergency $1.5 billion loan to Uruguay to help the country deal with an economic crisis that forced its banks to close last week, officials said Sunday.\nThe U.S. assistance will come in the form of a loan to be repaid in a matter of days once the South American nation receives a new loan package from the International Monetary Fund, said the officials, speaking on condition of anonymity.\nIt will be the first time the administration has agreed to provide direct support to a country in economic trouble.\nThe immediate support was judged critical to ease what has become an escalating financial crisis in South America. It began in Argentina in December and since has spread to Uruguay and Brazil, the region's largest economy.\nTreasury Secretary Paul O'Neill left Sunday for Brazil, and later will visit Uruguay and Argentina.\nThe administration took office pledging to oppose the type of direct financial assistance and big bailouts the Clinton administration used during the 1997-98 Asian currency crisis. But the deepening economic woes in Latin America have forced the Bush administration to reconsider that stance.\nA $1.5 billion loan for Uruguay was seen as essential to allow the country to reopen its banks Monday. They shut down last Tuesday as authorities sought to deal with a run on deposits. The closings sparked violent street protests.\nUruguay's Senate on Sunday approved a request by the economy minister to restrict withdrawals of deposits linked to the U.S. dollar for three years; the money would draw interest. The lower House was expected to meet later Sunday to consider final passage of the legislation.\nThe minister, Alejandro Atchugarry, said the proposal was the "only solution" to the crisis. It was expected that the IMF would grant approval for new assistance after the plan was approved.\nThe IMF this year granted Uruguay a $3 billion credit line, saying the money would help the country withstand the economic fallout from the troubles in neighboring Argentina.\nThe new $1.5 billion loan package was expected to include an extra $800 million in support and an acceleration in the disbursement of some of money already approved.\nU.S. officials insisted that the loan was not a return to the bailouts of the Clinton years. They included support during the Asian crisis and billions of dollars in direct loans to Mexico in 1995 to help that country recover after it was forced to devalue its currency the year before.\nThe Bush administration has softened its hard line in recent days against large IMF aid packages, given the troubles in Latin America.\nThe IMF is in negotiations with Brazil over an increase in its credit line, which now totals $15 billion. Published reports have said that amount could be boosted by $10 billion to $20 billion in an effort to calm increasing worries about Brazil's ability to meet payments on its $264 billion foreign debt.\nO'Neill said last week that the administration supported more assistance to Brazil and Uruguay because those countries were following the appropriate policies to deal with their economic troubles. He did include Argentina in that list.\nO'Neill said authorities there needed to go further with economic reforms before the United States, the IMF's largest contributor, would feel comfortable in endorsing new IMF loans for Argentina.