Brazil Hardens Stance in Foreign Debt Talks

In close contact with Mexico, Brazil has hardened its negotiating position on servicing its foreign debt of about $104 billion, the largest in the Third World.

Finance Minister Dilson Funaro told reporters in Brasilia late Tuesday evening that Brazil, after fruitless negotiations with creditor governments, has decided to impose its own terms: Payments totaling $1 billion will be made this year and in 1987, covering about $650 million in current interest but only 15% of the principal due this year.

The $1 billion will be partial payment on the $7.4 billion owed to governments that are members of the so-called Paris Club. The club is a group of government lending agencies, like the U.S. Export-Import Bank, that holds its meetings in Paris.

The Brazilian payment will not cover the arrears of interest and principal of more than $3 billion that were under negotiation.

“We will only pay what we can,” Funaro said in announcing the decision. “If some creditor does not agree, he can send back the check.”

Hardening of Position

The message to the creditor governments is that Brazil has hardened its position because of what it sees as inflexible positions by the creditors on Brazil’s proposals. Also implicit in the decision is a message to the international commercial banks that hold nearly $70 billion of Brazil’s debt and are negotiating, without much progress, on a long-term refinancing.

Brazil’s decision was made independently, but Finance Ministry sources said it was discussed with Mexico and other Latin American countries seeking debt relief and improved trade conditions. These countries make up the so-called Cartagena Group.

Mexico’s acute problem in meeting debt payments since oil prices collapsed is not shared by Brazil, which has benefited from the lower price it now pays for the oil it imports. The economy here is booming under expansive monetary and investment policies.

But Brazil has an interest in seeing Mexico obtain a favorable refinancing on easier terms. Brazil, even more than Mexico, rejects the monetary restraints and strict monitoring of credit and public spending that the International Monetary Fund insists on as conditions for additional international credit.

The IMF line is regarded here as the road to economic recession, and this is regarded as politically dangerous--and the wrong approach to overcoming the debt crisis.

IMF Gets Blame

Separately, Funaro said in an interview that Brazil will not accept a formal agreement with the IMF demanded by creditors as a condition for refinancing the debt.

“We will not submit our economic decisions to the IMF. That’s definite,” Funaro said.

And he blamed the IMF demand for aborting an agreement with the Paris Club government creditors on long-term refinancing of the $7.4 billion that Brazil owes to members of the club.

Brazil’s position on the debt problem is believed to have a firmer basis than that of any other Latin American debtor nation because of its economic strength. Brazil’s industrialized economy represents more than 40% of Latin America’s total output.

Funaro and Brazilian President Jose Sarney have been saying lately, with growing insistence, that Brazil’s capital needs are so great that current levels of debt payment cannot be sustained. Debt servicing consumes 40% of Brazil’s export earnings.