The 2002 banking crisis: Argentine contagion hits Uruguay's banks

Uruguay's sharpest post-1980 contraction traces directly to a banking crisis imported from across the Río de la Plata. Argentina's collapse into default and devaluation in late 2001 triggered a run by Argentine depositors on Uruguayan banks, where non-residents, overwhelmingly Argentine, held an estimated 41% of private deposits, around USD 6.2 billion, before the crisis. Over roughly seven months in 2002, total bank deposits in Uruguay fell by about half, an extraordinarily rapid withdrawal by international standards, draining bank liquidity and the Banco Central del Uruguay's own foreign reserves as it tried to backstop the system. The authorities responded with a deposit freeze on the most affected banks, an emergency liquidity line, and eventually restructuring of several institutions, while negotiating additional financing from the IMF and other multilateral lenders to avoid a full sovereign default. GDP contracted sharply through 2002 as credit dried up and confidence collapsed, before a currency float and the restructuring measures stabilized the financial system. The episode left Uruguay far more cautious about non-resident deposit concentration and bank liquidity buffers in the two decades that followed.