Brazil is close to announcing a new austerity program that it hopes will satisfy the International Monetary Fund and foreign bankers, sources said yesterday.
President Joao Figueiredo warned the nation on Monday night that the new measures would "hurt a lot of people." Saying in a televised address that Brazil--which owes more than $80 billion overseas--is in a "critical" financial state, the president said "we must adopt a set of measures that will fight inflation and recession, reduce the public debt, reduce interest rates and create new jobs."
The new measures are expected to include cuts in subsidies for wheat, petroleum and sugar; reduced subsidies for interest rates charged to farmers and exporters; and further cuts in spending and borrowing by state enterprises.
Last month, the IMF refused to allow Brazil to draw the latest installment of a three-year, $4.6 billion loan on the grounds that the nation had not met all the strict policy conditions laid down by the fund. Commercial banks followed suit, and have held up payment of the next part of a $4.4 billion, three-year loan until the IMF and Brazil agree.
Brazil has managed to survive the latest blow largely because much of the money was earmarked for repayment of earlier "bridging" loans, including a loan from the Bank for International Settlements in Basle, Switzerland. The BIS yesterday announced that Brazil has until the end of June to repay the $400 million now overdue. This was part of a $1.45 billion loan from 17 countries, including a previously undisclosed $250 million from Saudi Arabia, BIS President Fritz Leutwiler told Reuters yesterday.
Brazil's new measures are expected to include cuts in subsidies for wheat, petroleum and sugar; reduced subsidies for interest rates charged to farmers and exporters; and further cuts in spending and borrowing by state enterprises.
An IMF team is due to go to Brazil, but has been delayed several times by the Brazilian government while the economic package has been debated internally.
Bankers assume that Brazil will need to borrow several billion dollars more this year to keep on servicing its debt and paying bills, but so far serious work has not yet begun on a new loan, a New York source said yesterday. The banks are waiting to see what happens in the negotiations between the IMF and Brazil.
Meanwhile, in a test vote, the Senate indicated yesterday it would approve an $8.4 billion increase in U.S. contributions to the IMF to help it cope with the international debt crisis. Final Senate action was expected today. The House has not acted on a version approved by its Banking Committee.
The money is part of $42 billion to be made available by the United States and 145 other countries to help poor countries in trouble with their debts.
The Senate rejected, 55 to 26, an amendment by Sen. Gordon J. Humphrey (R-N.H.) to make the U.S. share conditional on a cut in salary for the highest paid IMF employes. Earlier, senators opposed to the bill lost, 57 to 26, an attempt to prevent debate on the ground that the federal budget for the current year is already set. The item is not included in the budget.
The Senate adopted, by a voice vote, amendments by Sen. Mack Mattingly (R-Ga.), that would, among other things, make the U.S. representative to the fund seek an end to trade practices by other countries that the U.S. government considers unfair, and require the administration to report to Congress if he fails.