In Uruguay total gross debt to GDP ratio rose from a relatively comfortable 37.2% in 1999 up to 112.4% in 2003. This situation brought the economy very close to a debt default. Exogenous shocks that lead Uruguayan economy to the worst crisis in decades are often mentioned as an explanation for this deterioration: regional capital flow reversion, Argentinean financial crisis and devaluation, Brazilian devaluation, terms of trade fall and foot and mouth disease. However, these exogenous shocks were magnified by some internal vulnerabilities. Among them, procyclical fiscal policy, price rigidity and a inadequate public debt composition can be mentioned. During the crisis of 2002 two vulnerabilities arising from the current debt structure became a severe problem:
a) Currency composition characterized by a high degree of dollarization produced a sharp increase in debt to GDP ratio when exchange rate jumped.
b) The maturity profile was highly concentrated at the moment the sudden stop happened.
Up to the crisis, public debt management didn’t follow any consistent strategy. Decisions were based upon short run cost minimization or opportunistic considerations. In order to address these vulnerabilities that still exist the new authorities have a commitment to create a debt office that would be responsible of debt management.