Countries of the World/COUNTRYS.BIN/dp/0385/03851.txt

Text File | 1991-06-25 | 7KB | 141 lines

$Unique_ID{COW03851}
$Pretitle{297}
$Title{Uruguay
The Banking Sector}
$Subtitle{}
$Author{Embassy of Uruguay, Washington DC}
$Affiliation{Embassy of Uruguay, Washington DC}
$Subject{zones
banking
uruguay
financial
free
sector
banks
capital
government
industrial}
$Date{1990}
$Log{}
Country:     Uruguay
Book:        Uruguay Country Data
Author:      Embassy of Uruguay, Washington DC
Affiliation: Embassy of Uruguay, Washington DC
Date:        1990

The Banking Sector

     Uruguay's financial system consists of several private commercial banks
and banking houses, both foreign and locally owned, as well as the public
sector institutions. These are the Central Bank (the monetary and supervisory
authority), Banco de la Republica (the state commercial bank) and the Banco
Hipotecario (the state mortgage bank).

     Most private banks are branches of leading international institutions,
some long-established in Uruguay and others of more recent arrival.
Full-service banking is the norm for commercial banks, while banking houses
are restricted to taking deposits from non-residents. Universal (i.e.
non-specialized) banking is the guiding principle of financial intermediation
in Uruguay, where off-shore transactions are fully contemplated by the law.
There is also legislation pending for the creation of merchant (i.e.
investment) banks.

     Entry to the market is subject to government approval, as well as to
minimum capital requirements. There are quantitative restrictions to the
number of new banks allowable each year.

     Over the years Uruguay has built a strong reputation as a regional
financial center, in view of its liberal regulation of exchange and capital
transactions, and the ability of the banking system to withstand the strains
on economic activity transmitted from the rest of the world. The US dollar
circulates freely in Uruguay, and about 75% of the financial system's deposits
are denominated in this currency. There are permanent capital inflows from
neighbouring economies which seek the security of a Uruguayan bank account,
currently accounting for about half of the dollar deposits in the banking
system, and which have grown more than tenfold over the last decade. The
structure of deposits in the system is as follows:

     The main features explaining the growth and attractiveness of Uruguay as
a financial market are: 1) absence of controls on foreign exchange
transactions; 2) total freedom of capital flows; 3) reliance on the market for
the determination of interest rates; 4) a strong tradition of respect for
banking confidentiality; and 5) absence of reserve requirements and no
taxation on off-shore banking transactions.

     While the growth of the financial sector is in itself a policy objective
of the government, its linkage to the real economy is also of primary concern
to the authorities. Banks have a key role to play in the economic development
of the country, through the provision of credit and finance to the processes
of investment, production and marketing. In this respect, the government has
sought to promote the lengthening of the average maturity of transactions in
the financial sector, so as to de-emphasize its short-term nature. The
authorities firmly believe that a clear set of well specified and firmly
enforced criteria promoting freedom in operations and sound banking principles
is the best foundation for sustained growth in this sector, which offers great
potential for internationally established financial institutions with
interests in the region.

Free Zones

     Perhaps one of the most promising areas for potential development in
Uruguay are the industrial free zones. Recent legislation (December 1987) and
new regulations (July 1988) are intended to stimulate the attraction of new
investment to these areas, under extremely advantageous conditions. The main
goals of this initiative are to boost exports, increase domestic employment
and contribute to regional economic integration.

     Industrial free zones operate in a restriction-free environment, with no
duties or taxes payable on industrial or commercial activities taking place
therein. There are currently two free zones operating in Colonia and Nueva
Palmira, across the river from Buenos Aires and about 100 miles West of
Montevideo. They are located close to port facilities, and are linked by
highway, railway and air to the capital. The new law provides for the
creation of additional zones as the need may arise.

     The exemption within the zones applies not only to import tariffs and
other customs duties, but also to corporate income taxes, wealth taxes and
consumption taxes. It is expected that most companies setting up plants in the
free zones will be geared towards re-exporting, since shipments into the rest
of Uruguayan territory will be treated just as any other import.

     The Ministry of Finance, charged with administrating the free zones, will
issue a certificate of Uruguayan origin to all exports from the zones, so that
manufacturers may benefit from preferential access to industrialized markets
which they may be denied from their country of origin. They will also be able
to take advantage of Uruguay's regional trade agreements, although preference
in meeting negotiated quotas will be given to the traditional export
industries located in the rest of the territory.

     Uruguayan state monopolies will not be applicable within the zones, so
that the provision of energy, fuel, communications, water and sewage,
insurance and even port facilities can be in private sector hands.
Furthermore, the legislation foresees that the construction, development and
administration of future free zones may rest entirely upon the private sector,
with minimum government supervision and maximum efficiency.

     Through the submission of an economically feasible project, potential
investors may obtain authorization to establish their plant or offices within
the zone. Furthermore, they may still apply for available benefits under the
Industrial Promotion Act. By means of a contract setting out the conditions of
operation, the government will guarantee to indemnify investors against all
losses and damages resulting from unilateral changes in the conditions
originally agreed.

     There will be no restrictions whatsoever on the introduction,
circulation, conversion or transfer of all currencies, securities and precious
metals within the free zones.

     In view of the strategic location of Uruguay with respect to the major
markets in the region, the benefits associated with goods of Uruguayan origin
in penetrating other markets where trade restrictions are in force, and the
high quality and availability of labor in the area, it is expected that strong
demand will materialize in certain activities as the facilities come onstream
in the near future. Areas such as electronic assembly, light manufacturing,
food processing, data entry and processing, graphic design and software
production are but a few of those that present good prospects for the
development of industrial parks.

     Inquiries should be directed to Direccion de Zonas Francas, Acevedo
Diaz 996, Montevideo (telephone: [phone]).