Fitch Ratings Upgrades Uruguay to 'B'.

Business Editors

NEW YORK--(BUSINESS WIRE)--March 29, 2004

Fitch Ratings, the international rating agency, has today upgraded Uruguay's long-term foreign currency rating to 'B' from 'B-' and its long-term local currency rating to 'B+' from 'B'. The short-term foreign currency rating is 'B'. The Rating Outlook is Stable.

Following a series of shocks that dragged the economy into a protracted recession and culminated in the debt restructuring of May 2003, Uruguay has begun to show signs of stabilization and growth. Exports are rebounding on the back of higher commodity prices and improved competitiveness following a large real depreciation. External improvements have supported a steady recuperation of international reserves, and banking system deposits have risen. The faster than expected recovery has underpinned better fiscal performance.

Last year's debt restructuring substantially lightened market amortizations through 2010 and scheduled interest appears manageable relative to both GDP (6%) and to revenues (21%), in spite of its higher peso cost after the 2002 devaluation. In the current benign environment of general macroeconomic stability and favorable global conditions, it is difficult to envision financial pressure for Uruguay to default near-term. Debt service through next year appears covered by ongoing access to local market financing, the potential for an additional international bond issue and substantial commitments for more multilateral disbursements.

Any potential pressure for a default in the next year would likely stem from political risk or because expectations of an eventual restructuring rise driving refinancing costs to prohibitive levels. A more populist government could still view interest payments as unduly burdensome, and might seek an adjustment, especially in the event of another recession. Public debt remains very high at 110% of GDP and most of it is denominated in foreign currency. With limited access to international markets, refinancing risk would be very high if multilaterals hesitated to roll obligations in the event that policy targets are not met. With this in mind Fitch will monitor policy pronouncements by candidates for the presidential election in October, their short-term market impact and their longer-term impact on relations with multilaterals.

Assuming benign global conditions and no pre-emptive debt restructuring, debt sustainability appears to be a longer-term concern that will hinge on real exchange rate appreciation, economic growth, and fiscal prudence.