The International Monetary Fund and major commercial bank lenders will deny Brazil more than $1 billion in loan payments due next week because the country has failed to meet economic conditions imposed by the lenders, banking sources said yesterday.
Sources said the loan payments will be delayed for at least a month.
Major bankers were in disagreement yesterday over whether the delay would trigger a cash crisis in Brazil, which already has fallen behind in some of its debt payments and may be in arrears by $1 billion or more. Several major banks predict that by July, Brazil will be in arrears by as much as $3 billion, although more conservative estimates put the figure at about $1.4 billion.
Some bankers say they believe the three-month old Brazilian rescue package will have to be restructured.
Banking sources said the Brazil is trying to persuade IMF officials that it is in fundamental compliance with all the economic conditions set down when the fund agreed last February to lend the Latin American nation $4.6 billion over the next three years.
Sources said Brazil is also seeking more flexible ways to measure whether it is reaching the targets demanded by the IMF. The major commercial banks, which have agreed to $4.4 billion in new loans this year as part of an overall debt commitment of about $30 billion, made their loan payments conditional on IMF payouts.
Morgan Guaranty Trust Co., which is the bank in charge of the $4.4 billion loan package, cabled banks yesterday that because the IMF "no longer expects" to make its payment -- believed to be between $400 million and $500 million -- on May 31, the banks will have to hold off providing roughly $635 million they were scheduled to lend.The IMF has put at least a temporary hold on the May 31 loan payment because it believes Brazil has not cut its spending and borrowing as much as required. Brazil claims the deficit is largely the result of higher-than-expected inflation and not because it is borrowing more in real, inflation-adjusted terms.
Sources said the International Monetary Fund is sending a team to Brazil early next month to examine that issue.
Some major bankers insisted yesterday that the delay in loan payments to Brazil will not trigger another cash crisis in the country, which is burned by more than $80 billion in foreign debts, most of it to commercial banks. They said that all but about $200 million of the scheduled May 31 payment was to be used to repay short-term, "bridge" loans Brazil received earlier this year to tide it over until it could work out longer-term packages with the banks and the IMF.
But other officials of major banks said Brazil is already in a cash crisis -- in part because smaller regional banks in the United States and Europe have not continued to provide Brazil with the money market lines of short-term credit and deposits that they had promised, and in part because the amount of money Brazil received was too small and too expensive to begin with.
"The banks have got the realize that Brazil needs longer-term, lower cost money to pull through," said the chief of Latin American lending at a major U.S. bank. "Brazil needs 15-year, fixed-rate loans, not eight-year, floating-rate loans," he said.
But at least one major international financial official said it seemed ludicrous to expect the banks to give Brazil easier terms.
"If you can't get money out of a stone one way, you won't get money out of a stone another way," the official said.
In addition to giving Brazil $4.4 billion in new loans this year, the banks also agreed to refinance $4 billion in debts coming due this year, provide more than $9 billion in trade financing and money market lines of about $7.5 billion. However, those money market lines have shrunk to less than $6 billion today and are $3.2 billion smaller than they were last June 30.