Volume 44, Number 172,
January-March 2013
The Role of Public Banking during
Financial Crises in Argentina and Uruguay
Wesley Marshall
An Evaluation of the Role of Public Banks in Uruguay

The 2001-2002 Argentinean banking crisis represented an extremely complicated and conflicted transition between economic models, implying nothing less than a radical transformation in how the central bank functioned, the change from the dollar to the peso as the dominant currency and a significant change in the composition of the banking system. Because it is a moment of such importance for the history of the country and the region, the Argentinean experience offers an abundance of economic lessons. This work sought to highlight the fundamental role of public banking in the transition to an economy where the State recovers sovereignty of credit, fiscal and monetary policy.

The 2002 banking crisis in Uruguay also represents a watershed moment for the history of the country. However, in this case, the break was smaller than the continuity. The country had never adopted an extreme economic model during the 1990s (especially in comparison with Argentina), and at the end of the crisis, the economic regime adopted was not so different from the previous plan. With a less dramatic transition than Argentina, there was no space for the public banks to take on such a prominent role. But as indicated, the mere presence of the public banks in Uruguay determined its lesser role during the crisis and its resolution, as well as a less devastating crisis for the economy as a whole. The fact that the largest bank in the country did not participate in activities that contributed to the development of the crisis —such as speculation on Argentinean assets and a high concentration of risk in Argentinean clientele— allowed the brous to act as the entity that stabilized the system during the crisis, achieving an important repositioning, as seen in Figure 7. But more definitively, its presence diminished the scope of the crisis. Without an anchor for the financial system, it is likely that all of the banks in the country would have simultaneously entered into crisis, like what happened in Mexico in 1995 and the United States in 2008, creating a situation in which a solution to the crisis would be much more complicated.


Figure 7. Participation of Different Types of Banks in Total Deposits

Source: Central Bank of Uruguay

CONCLUSIONS

This article’s approach is limited to clearly defined places and times. However, the historical lessons of the banking crisis in Argentina and Uruguay at the beginning of the new millennium do not have these limitations. Because these are two profoundly different types of banking crises, with public banks as the common element, the fundamental effects of public banks on a financial system in times of crisis can be identified more easily and clearly, independently of whether the banking system caused the crisis or not, or whether the public banks assume an active counter-cyclical role (like in Argentina) or a passive role (like in Uruguay). In this way, the experiences in Argentina and Uruguay provide an important contribution to the analysis of current banking crises, both for economies where the banks caused the crisis as well as economies whose financial systems have been undermined by the global financial turbulence.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: June 27th, 2018.
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