Renegotiate debt or else — Brazil

Press, 23 February 1987, Page 10

Renegotiate debt or else — Brazil

NZPA-Reuter Brasilia Senior Brazilian financial officials said yesterday the nation would not resume interest payments on its commercial foreign debt until it reaches a satisfactory renegotiation agreement with its creditors. President Jose Sarney announced on Saturday that Brazil, the developing world’s largest debtor, was indefinitely suspending interest payments on the $126 billion it owes to foreign banks, pending new negotiations with its private creditors. “We are saying that remittances will be made only when we have concluded negotiations, which we hope will be in a reasonably short period of time,” the governor of the Central Bank, Francisco Gros, told Reuters yesterday.

The Foreign Minister, Dilson Funaro, who will

meet creditor bankers in New York early next month, voiced similar views earlier yesterday.

Creditors would not view Brazil’s decision as a confrontational act, but as a sign of its determination to negotiate, he said. He did not expect the creditor banks to take reprisals. “What we want is to overcome our current economic crisis and not to be forced to survive with it,” said Mr Funaro, adding that Brazil hoped to work out an arrangement with creditors that would allow it to maintain economic growth. Brazil’s foreign debt stands at $2Ol billion, including $126 billion owed to foreign banks. In a related development, Argentina repeated yesterday that it might suspend payments on its $9B billion foreign debt if commercial banks refused its request for new funds.

It made a similar statement on Saturday. The Argentine Treasury Secretary, Mario Brodersohn said: “If the international banks don’t grant us the SUS2.IS billion ($3.98 billion) we asked for, priority will be given to growth of the Gross Domestic Product rather than meeting foreign debt payments.”

• The United States said yesterday it regretted Brazil’s announcement of a moratorium on interest payments. But officials said privately there was less cause for alarm than might appear at first sight. “We regret that Brazil took this temporary action and we expect these matters to be resolved in the context of Brazil’s negotiations with its private (commercial bank) creditors,” said a Treasury spokesman. Although the spokes-

man did not allude to the fact, United States officials noted privately that the moratorium did not affect loans made to Brazil by Western Governments, international institutions such as the World Bank, trade credits or payments on interbank deposits — all of which would continue to be serviced.

But other Western officials said they feared that the Brazilian action might jeopardise completion of a crucial $ll billion financing package for Mexico, still uncompleted after six months of negotiations.

These officials said Mexico’s commercial bank creditors had financed about 96 per cent of the total, but the process had been stuck at this figure for weeks.

There was no immediate indication that the Brazilian debt move, which markedly resem-

bles the 1982 Mexican moratorium, was a topic at yesterday’s meeting of Finance Ministers and central bankers from the five leading industrial democracies.

According to officials, Ministers of the Group of Five — the United States, Japan, West Germany, Britain and France — have focused exclusively on a plan to stabilise volatile exchange rates and bolster economic growth.

The United States Federal Reserve Board chairman, Paul Volcker, who attended the meetings, said last week that Brazil was in a grave economic crisis.

He also warned that the slow pace of commercial bank credits to debtor countries was reigniting the debt crisis. United States officials said last week there were no signs that the Treasury

Secretary, James Baker, was about to alter his initiative for shoring up global debt problems. This plan, launched in October, 1985, called on commercial banks and international institutions to increase lending sharply to debtor nations bent on genuine economic reform that promoted faster growth in their economies.

United States officials said recently that a tough stance by Citicorp, America’s biggest bank, which has lent huge amounts to nations in Latin America and Asia, might have helped to accelerate Brazil’s change of heart on debt policy.

Mr Baker is reported to have criticised the Citicorp chairman, John Reed, for his insistence that some debtor nations should pay higher interest rates than they have recently.