Unable to prevent a free-fall in the currency, the Uruguayan government announced the closure of its banking system July 30 for the first time in 20 years. The order was extended for at least the next four days. In July alone, the central bank’s international reserves fell more than 55 percent from $3 billion in December to $622 million as of July 31. In part this was due to a massive withdrawal of funds by upper and middle class depositors from Argentina.

In response, Moody’s Investors Service cut its sovereign rating on Uruguay two notches deeper into junk bond status, while Fitch also lowered its rating, saying Uruguay’s reserves were at "precarious" levels.

"We’re becoming another Argentina," stated Maurice López, 45, a Montevideo store clerk, referring to the long-term freeze on withdrawing bank deposits put in place in that country. "I can’t believe it has come to this."

Meanwhile, thousands of workers staged a four-hour strike in Uruguay August 1 against the devastating effects of the capitalist economic crisis on workers and peasants.

At the end of June the Uruguayan government announced it was ending its currency-band system and would now allow its currency, the peso, to float to market levels. Since that time the peso’s value has fallen by more than 20 percent against the dollar. The country’s economy declined 10 percent in the first quarter of 2002.

In face of this crisis, and a financial free-fall in Brazil, U.S. treasury secretary Paul O’Neill angered many across the continent when he said new loans would only be available when countries assured Washington that the funds wouldn’t "just go out of the country to Swiss bank accounts."

In Brazil, South America’s largest economy, the nation’s currency, the real, went into a tailspin, declining in value against the dollar by 19 percent in July, reaching its lowest point since going into circulation as the national currency in 1994. The real has lost 34 percent of its value since January, despite attempts by the Central Bank to shore it up by pumping $1.5 billion into the foreign exchange market.

The imperialists are worried over what will happen in national elections scheduled for October in Brazil, as the presidential candidate of the Workers Party, Luiz Inácio Lula da Silva, is leading in the polls. Although the party’s candidates have assured Washington they will honor the country’s debt payments, the U.S. rulers fear rising expectations by working people and political instability if the Workers Party wins the poll.

The plunging real has driven up the costs of servicing Brazil’s massive $250 billion debt, which in turn has increased fears by capitalist investors of a default like occurred in Argentina in December. "With international banks severely restricting credit lines," reported the Financial Times, "Brazilian companies have been forced to buy dollars on the spot market to pay off their foreign debt." Brazil’s national debt has ballooned to nearly 80 percent of the country’s gross domestic product.

As the financial crisis deepened, U.S. treasury secretary O’Neill switched positions, announcing August 1 that he now backed offering new loans to Uruguay and Brazil, but not to Argentina. That country, which is in the midst of the deepest economic crisis in South America has seen its gross domestic product plunge 16.3 percent in the first quarter of 2002, from a year earlier. The economy in Argentina has contracted for the past 14 quarters, with official unemployment at 25 percent and underemployment driving the figure up even higher.  
 
 
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