Brazilian authorities have promised to negotiate with commercial banks for an agreement leading to resumption of "regular servicing" of their obligations to the banks, International Monetary Fund Managing Director Michel Camdessus said yesterday.
Camdessus told The Washington Post he had been assured that Brazil wishes "to restore orderly relations with the financial community," including its official creditors.
The resumption of payments to commercial banks, Camdessus said, would be "in the context of a financing package that would include new money, debt-reduction operations and other options available under the present debt strategy."
Brazil's negotiations with commercial banks, to begin in next month, are expected "to cover the matter of arrears as well as the amounts and the forms of interest payments," Camdessus said.
The amounts to be paid and the timing of the payments were not specified, but Camdessus said that the IMF management anticipates that "the modalities of payment will be determined in a pragmatic way between the two sides."
Negotiations by Brazil with its official creditors would start after the IMF approves a standby loan requested by Brazil, Camdessus said.
Brazilian Minister of Economy Zelia Cardoso de Mello told the interim committee yesterday that "we shall shortly start negotiations with our official and commercial bank creditors," but did not give the details supplied by Camdessus.
The question of arrears -- past-due payments of interest and principal -- owed by Third World nations to commercial banks has become contentious because some of the debtor nations, including Brazil, are applicants for more loans by the IMF or the World Bank.
On Saturday, the Group of Seven major powers took the unusual step, in a communique on key global issues, of saying that Brazil should "resolve its arrears problems with its external creditors in the context of the adoption of a formal IMF arrangement."
Commercial bankers have persistently criticized the IMF management for not putting enough pressure on Third World powers such as Brazil to make some down payment on their past-due payments to the banks before getting new IMF money.
The U.S. Treasury last week joined in the pressure on the IMF. Camdessus has been trying to encourage Brazil to settle the problem without abandoning his effort to arrange a sound loan program for Brazil.
The interim committee met throughout the day on global economic problems, with every indication that its major conclusions, to be announced this morning, will follow the general outlines of the relatively optimistic G-7 communique issued Saturday, which said the Persian Gulf crisis would dampen economic growth next year, but not lead to a recession.
The interim committee session is a prelude to the three-day annual meeting of the IMF, to be held jointly with the World Bank. The meeting begins tomorrow.
Also meeting yesterday was the Group of 10 industrial countries -- the G-7 plus Belgium, the Netherlands, Sweden and Switzerland, which was added after the original 10. Its communique reiterated the G-7 theme, including the newly contrived euphemism for anti-inflation efforts, "stability-oriented monetary policies".
In a speech to the interim committee, Treasury Secretary Nicholas F. Brady extended the upbeat tone of the G-7 communique by using the word "solid" for next year's economic growth in industrial nations as a group. He conceded that the pace in the United States, Canada and Britain would be slower than in Europe and Japan.
But while Brady has been stressing that the gulf crisis poses the equal, "twin risks" of inflation and low economic growth, it is apparent that several of the other major powers see inflation as the main threat. These nations in effect counsel Brady not to push for lower interest rates in his effort to forestall the threat of recession.
Brady nonetheless has made clear that the Bush administration is not reversing its pressure on the Federal Reserve Board to lower interest rates.
Speeches by British Chancellor of the Exchequer John Major and German Finance Minister Theo Waigel raised a note of caution about this policy without naming Brady or the United States. Major warned that "the need to keep up the fight against inflationary pressures must remain central to our policies ... there is nothing to be gained, and much to be lost, by easing up on inflation. We will not and we hope others will not."
Waigel said that "those who recommend relaxing monetary policy now should carefully consider whether this is advisable in the present special situation and whether it could be done without harming the credibility of monetary policy."
And in what seemed a clear, critical allusion to the Brady-Bush administration policy, former Fed chairman Paul A. Volcker said that "it would seem to me not just simplistic but flatly wrong to suggest that the risk of a downturn in the economy, however mild, can be laid to monetary policy."
Volcker made his remarks at the annual Per Jacobsson lecture, delivered in conjunction with the IMF-WorldBank meetings in honor of a former IMF managing director.
Japanese Finance Mister Ryutaro Hashimoto expressed satisfaction with the "relatively stable situation" in foreign exchange markets, but raised the possibility in his speech to the interim committee of exploring "a more stable monetary system," especially one that would keep the currencies of the United States, Japan and the European Community closer together.