A year after its latest debt crisis erupted, Brazil is trying to break the impasse with its creditors by the time the International Monetary Fund holds its annual meeting in Washington in two weeks.
This week, a series of meetings in various financial capitals aimed at resolving Brazil's dilemma is expected to shift the logjam caused by the Latin nation's inability to keep to targets on inflation and spending set by the IMF.
The IMF board must consider the terms of Brazil's third formal letter of intent this year, designed to restart the flow of disbursements from the fund that were suspended when Brazil failed to meet earlier targets on inflation and its public deficit. Other credits from commercial banks and multilateral agencies depend indirectly on IMF approval.
There are signs that Brazil, which owes foreign lenders some $90 billion, is becoming resigned to accepting the strict IMF conditions it has been resisting since last December as the price of financial rescue, despite the growing domestic political opposition.
Brazilian Finance Minister Ernane Galveas and the new central bank governor, Affonso Celso Pastore, are visiting the United States for meetings with bankers in New York tomorrow. On Monday they met with U.S. Treasury Secretary Donald T. Regan, IMF Director Jacques de Larosiere, and officials at the World Bank and the Export-Import Bank
The Bank for International Settlements and the Paris Club also are considering Brazil's demands for new capital flows this week. A formal request to the Paris Club is expected to be drafted Wednesday at a meeting of the National Monetary Council in Brasilia.
"Brazil is intending to go in the direction of the IMF program . . . It's extremely unlikely the government is now fooling the fund," said Massachusetts Institute of Technology economics professor Rudiger Dornbusch. But he believes that the program will exacerbate a recession already worse than that of the 1930s, and provide no prospects for growth in an increasingly unstable political environment.
"The outlook is for extreme tightness, with no source of growth to turn the economy around, with economic and social tensions and business failures which will spread to the financial system--that's frightening," he said.
Dornbusch, on a visiting lectureship here, said Brazil's "IMF 3" is an "extremely deflationary program" that will prompt a retraction of at least 7 percent next year, instead of the zero growth officially forecast. Without prospects for growth, Brazil can face up to five years "with no light at the end of the tunnel," he said.
A key sign of the resignation to the IMF restrictions was the abrupt departure of central bank governor Carlos Langoni, who refused to sign the letter of agreement with the IMF.
The agreement calls for a drop in inflation from the current 153 percent to 55 percent by the end of 1984, and for an inflation-adjusted public deficit of zero.
"Any economist of sense can see it's an absurd proposal," said Prof. Paulo Nogueira Baptista of Rio's Catholic University.
Another crucial IMF demand is to limit semiannual wage rises, which are pegged to 80 percent of inflation. The measure has to be passed by Brazil's Congress, which has signaled its reluctance.
"If there's any sign that the agreement between Brazil and the fund is going to disintegrate, the situation is going to get very tricky," said a senior West European bank adviser.
He added that, "If there's any feeling that the IMF throws in the sponge on Brazil's targets, both commercial banks and governments will be far less willing to take part."