Brazil's multi-billion financial rescue package, put together less than three months ago as a joint effort of international bankers and the International Monetary Fund, is in danger of falling apart, bankers said yesterday.
Unless the financially strapped Latin American nation receives billions of dollars more money, Brazil will be unable to pay all its bills this year, bankers and officials said. Brazil has nearly $90 billion of foreign debts.
The nation already is behind by $700 to $800 million in payments to its bankers and its suppliers and that figure could grow to $1.4 billion by July, several bankers warned.
Brazil's major lenders met last Monday but failed to come up with a new strategy for raising the money.
At some point, bankers said, a Brazilian creditor could demand payment and if Brazil is unable to pay, that demand could trigger a default on billions of dollars of that country's loans. That is a development that Brazil, its bankers and other major governments do not want to occur and one they will take pains to avoid.
Smaller banks here and abroad have failed to give Brazil all the money they promised in the aid package and, instead, many are pulling funds out of the country. Officials of major banks, who already think they are shouldering a disproportionate share of the Brazilian burden, do not want to let smaller banks off the hook by putting up still more money themselves.
Both the Federal Reserve Board and major banks have put pressure on the smaller U.S. banks to keep up their lending to Brazil, but bankers said the efforts have had little success.
"When we put the pressure on them, they laugh at us," said a top official at a major New York bank.
"Brazil has been making it so far by holding off paying its suppliers," said the chief of Latin American lending for a major U.S. bank. "But as Brazil's cash gets scarcer, it gets harder and harder to play one supplier off another one."
Brazil also is in danger of failing to comply with some of the severe economic conditions laid down by the International Monetary Fund when the agency agreed to a three-year, $4.9 billion loan on Feb. 28. Brazil's central bank governor Carlos Langoni will come to Washington next week to ask IMF officials to give Brazil more time to meet targets for cutting public spending and borrowing.
At the same time the IMF loan was approved, Brazil and its bankers agreed to a complicated, four-part financial package that included $4.4 billion in new loans, refinancing $4 billion in debts that come due in 1983 as well as continuing nearly $20 billion in trade financing and so-called money market lines to Brazilian banks.
It is the fourth part, involving short-term loans to Brazilian banks, that is affected by the actions of the smaller banks in the United States and in Europe. Many have not provided the promised funds and some have been withdrawing funds from Brazilian banks as the short-term deposits mature. Last June, Brazil had $9.2 billion in money market lines from about 450 banks around the world.
By the end of the year, it had shrunk to $7.5 billion and today is below $6 billion, although in February bankers agreed to restore it to the Dec. 31 level. Brazil needs cash to pay its bills every day, and as smaller banks decline to replace the more than $3 billion they have withdrawn since last June, the country has been forced to rely on bigger banks--such as Citibank, Morgan Guaranty, Manufacturers Hanover Trust Co. and Chase Manhattan--to come up with the money.
Major bankers said they are stretched to the limit.
"We're up to our ears in Brazilian debt," said a top official of one of Brazil's major lenders. "We can't take on much more. Meanwhile, the U.S. regional banks have taken their money and run."
At Monday's meeting, U.S. banks proposed devising a new strategy for raising the money that would persuade regional banks to pay more of their share by amalgamating the short-term trade credits and the money market lines, bankers said. They also discussed the possibility of a new medium-term loan, similar to the $4.4 billion loan granted last winter. Many smaller banks were not part of that loan.
But foreign banks present at the New York meeting rejected this proposal and said they preferred to go on trying to raise money under the original bank program. The next meeting is scheduled for June 9.
Some bankers said they wanted senior Brazilian officials to visit regional banks across the United States and Europe to present their case in person. They also want Brazil to put pressure on these banks through the International Monetary Fund and central banks in their home countries.
Brazil is not the only Latin American debtor in difficulty. Chile already is out of compliance with its IMF program and bankers worry that other major debtors--among them Mexico, Argentina and Peru--could have problems in the future if the world economy continues to recover slowly.