Toward the Brink

Eight Uruguayan officials, led by Agriculture Minister Wilson Ferreira Aldunate, walked uneasily into a private office at the Federal Reserve Bank of New York one day last week, unpacked their briefcases, charts and account books, and for 2 1/2 hours pleaded for help from representatives of seven metropolitan banks. The same day, the Uruguayans shuttled to Washington for similar meetings with officers at the International Monetary Fund, Inter-American Development Bank and Inter-American Committee for the Alliance for Progress. The sad truth, only too obvious to the bankers, was that tiny Uruguay is almost flat broke, and, like a householder who is already up to his ears in debt, was finding it increasingly difficult to raise fresh cash.

The seeds of the present crisis go back to the early 1900s, when a young reform-minded President named Jose Battle y Ordonez started the country on a spree of welfare-statism. He and his successors set up workmen's compensation, minimum-wage and old-age-pension plans, organized a sprawl of government industries (insurance, electricity, petroleum refining) to cut consumer costs and--in an effort to guarantee democracy--replaced Uruguay's one-man presidency with a nine-man National Council. As benefits piled on benefits, the Council became less a government than a gigantic octopus that today is drowning in its own ink. To meet rising annual deficits, the government simply has printed more money, has run the foreign debt to an unwieldy $500 million, of which $80 million is already overdue this year. Largely as a result, the once-proud peso in the past five years fell from 9-c- to 1 1/2 and the cost of living quadrupled.

To tide the country over into next year, the Council recently asked the National Assembly to authorize another $94 million in new currency. Last week the Council had to settle for only $28 million--"barely enough," snorted Finance Minister Daniel H. Martins, "to cover our needs until September." Many Uruguayans agreed. University students demonstrated angrily in downtown Montevideo, and thousands of government employees staged a series of brief protest strikes. Uruguay's immediate object in sending its eight-man mission north is to get $56 million in U.S. commercial debts rescheduled and to arrange for additional loans. The country's past record has made Washington leary. Before any further credit can be considered, the U.S. wants to see a broad program of economic reform in Uruguay. New York banks are of the same mind.

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