Brazil's central bank governor met with major international bankers in New York yesterday to start a new attempt to raise more money for the financially strapped nation, which owes more than $80 billion to overseas lenders.
Brazil has been teetering on the edge of bankruptcy throughout much of this year, partly because international banks have not come up with all the cash they originally promised the nation. Smaller banks in the United States and other banks in Europe, the Middle East and Canada have refused to put money back into short-term deposits with Brazilian banks, leaving the nation unable to meet all its payments.
Brazil and its creditors have now given up on the complicated four-part financing package that was negotiated in February as part of an overall financial rescue operation orchestrated by the International Monetary Fund. Instead, one group of banks from around the world will now begin to advise Brazil on all of its negotiations with commercial banks, including requests for more new money this year and restructuring of the debts due to be repaid in 1984. There may be a smaller group of about 10 to 15 banks, chaired by Citibank of New York, that will work more intensely within the larger group, New York sources said yesterday.
Central Bank Governor Carlos Langoni is expected to make a plea for a new medium-term loan to help the nation through the rest of this year, banking sources said. Although some experts believe Brazil will need $3 billion or more extra money this year, commercial banks are unlikely to contemplate a new loan of this size, one official of a major U.S. bank said. He said they would more likely consider a loan of about $1.5 billion.
At present, Brazil's overall financial package is in danger of breaking down as it has failed to keep to the strict policy conditions laid down by the IMF, and has slipped into arrears of close to $1 billion.
The nation's failure to cut public spending and borrowing and reduce inflation as promised led the IMF to withhold payment of the latest installment of its three-year $4.6 billion loan to Brazil, due at the end of May. Commercial banks followed suit and have also delayed payment of the next installment of their $4.4 billion medium term loan to the nation.
Brazilian officials say that the move has not yet had much impact on cash flow, because much of the money was due to be used to repay other bridging loans. But unless it reaches a new agreement with the IMF soon, banking sources fear that it will move deeper into arrears and that the government will face increasing pressure to declare a moratorium on debt repayments.
An IMF team, headed by the chief of the Western Hemisphere department, is now in Brazil to see if the new austerity measures announced by the government last week and this week are sufficient to bring it back into compliance with the IMF. The most troubling issue appears to be the widespread indexing of wages and prices, which IMF officials believe will worsen inflation and weaken the effectiveness of Brazil's devaluation earlier this year. Brazil's economic team did not make any move away from indexing in the latest austerity measures.