Bankers are becoming concerned that they will soon have to classify some of their loans to Brazil as "non-performing assets," because that debt-ridden nation is falling further and further behind on its interest payments.
The list of problem loans at banks has been growing for the past several years, mainly because the severe recession in the United States has made it difficult for companies to keep current on their loans. But most Latin American debts--including those of Mexico, Venezuela and Argentina--have not been put on the banking equivalent of the critical list because the countries have kept reasonably current on repayment of interest even though they have pushed off repayment of principal.
The addition of many Brazilian loans to "problem asset" lists would heighten already aroused public concern about the quality of loans to Latin America and the health of the U.S. banks as well as give further ammunition to congressional opponents of a proposed $8.4 billion increase in the U.S. contribution to the International Monetary Fund. Opponents of the increase argue that the proposed increase is nothing more than a bail-out of international banks that made too many risky loans to Latin America.
Brazil had intended to pay its interest due with new loans from its banks as well as with funds from the IMF. But the IMF and the banks cut off Brazil last May because the country failed to live up to the terms of a loan agreement it made last February with the IMF.
It finally signed a new agreement with the international financial rescue agency Thursday, but funds won't begin flowing again until next month, bankers and IMF officials said. Until then Brazil likely will fall even farther behind in its interest payments.
Brazil probably needs a new temporary loan to tide it over until money starts to flow again, but bankers said they would be reluctant to make such a loan without some sort of repayment assurance from U.S. authorities.
Brazil has been husbanding its meager inflows of dollars to buy oil and to pay interest on its foreign debts. But several bankers said the nation appears to be building up a "war chest" of foreign reserves in case it is forced to declare a formal moratorium on interest payments. So far banks have ignored Brazil's interest arrearages and have not taken any steps that would force Latin America's biggest debtor--with $90 billion of foreign loans--into default.
In another development, Citibank senior vice president William Rhodes announced yesterday that Argentina's major lenders said Argentina could wait another 30 days before making a $350 million loan payment due Thursday. The waiver saves Argentina from being in technical default on the loan, although even if it were not granted it was doubtful that any bank would have tried to declare Argentina in default.
Such a move might make all of that nation's $39 billion in debt due immediately and probably would force the country into declaring a moratorium on any debt repayment.
The waiver was granted after Argentina took the first step toward changing its bankruptcy laws that now favor Argentine creditors over foreign creditors.
Argentina yesterday also signed the first of its refinancing agreements for the waivers that came due in 1982 and 1983 that could not be repaid under the original terms. The restructuring of $220 million in debts owed by the Argentine national airline is supposed to be a model for the refinancing of about $6 billion in other Argentine debt.
The signing of the loan restructuring also paves the way for disbursement of $500 million of a $1.5 billion new loan agreed to last month by Argentina and its lenders. The restructuring and the first disbursement of new loan money was held up because of the bankrupcty law.