About half of the 200,000 residents of Montevideo's shanty towns are set to win a reprieve in a government plan to regularize substandard housing seen as an embarrassment to a country hailed abroad as a buoyant emerging economy with prospects of further growth.

Officials said they would consider giving nearly half of the slums regular status, but the other half would need to go and likely be relocated.

It was not immediately clear how the relocation would be arranged. The majority of the slum dwellers have jobs or small businesses in the capital and other cities where their settlements have drawn public criticism.

Most likely to be displaced are inhabitants of shanty towns erected in areas notorious for environmental contamination from industrial effluence or sewage or land prone to frequent flooding.

Montevideo is known to have most of an estimated 676 shanty towns -- a fact not readily recognized by officials until former guerrilla fighter and revolutionary Jose Mujica took over as president March 1, 2010, after an election the previous year.

The former extreme left winger from the Tupamaros armed guerrilla movement has proven to be a pragmatist, courting capitalists and working-class communities alike with his folksy style of government.

The government acted to streamline the shanty town housing as part of an ambitious $150 million program that combines poverty reduction with cleaning up and modernization of the capital city and other urban centers.

Almost 90 percent of the shanty towns are concentrated in Montevideo, although estimates differ.

Housing and Environment Minister Graciela Muslera cited expert estimates that up to 48 percent of the irregular settlements -- currently condemned as illegal -- could be regularized through government-led reforms. But the other 52 percent would have to be relocated, Muslera said.

Although much of the funding for the program will come from the government, officials said contributions from several multilateral organizations would be included in the financing of the project.

Progress on the regularization process is likely to be in stages, however. The first 800 families most exposed to health hazards and flooding will be relocated within five years.

Estimates based on surveys by non-government agencies indicate up to 11 percent of the capital's population may be living in the slums.

Various government agencies have already begun measures to reduce crime and drug trafficking in the slums, where recent studies have highlighted sharp income disparities between ordinary working-class groups and members of organized armed gangs.

Most of the shanty towns sprang up in the 1990s as a combined result of poor living conditions in the outlying rural areas of Uruguay, crop failures, drought and the lure of urbanization.

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