Brazil Will Limit Debt Payments to 2.5% of Its GNP

Finance Minister Dilson Funaro signaled Brazil’s creditors Tuesday that his country intends to limit its annual payments on foreign debt to 2.5% of its gross national product. The move comes after Brazil obtained refinancing of $31 billion of its $100-billion foreign debt with international banks last week.

Funaro said during a visit to Argentina, another major Latin American debtor, that Brazil cannot achieve the annual 7% growth rate for its economy that the government is aiming for if it has to pay foreign creditors 4% of its GNP.

“Brazil comes first, the creditors second,” he said.

Brazil’s annual production of goods and services--gross national product--is about $250 billion. A 2.5% limit on debt service payments would cut net payments to foreign banks by $2 billion to $3 billion next year.

Payment of interest and unpostponed capital amortization cost Brazil nearly $12 billion in 1984. This fell to less than $11 billion last year as interest rates declined, and it is expected to cost about $9 billion this year.

A limit on debt servicing payments equal to 2.5% of GNP would imply a reduction in the annual level in 1987 to just over $6 billion.

Funaro did not give details of how Brazil proposes to reduce its payments, but one of his advisers, Joso Manuel Cardoso de Mello, told Brazil’s leading financial newspaper, Gazeta Mercantil, on Tuesday that any debt service payments above the 2.5% level would have to be covered by new loans or refinancing of interest.

Another adviser, Stephen Kanitz, said Brazil will offer creditor banks a system to convert debt into long-term bonds that would be protected against inflation and would be internationally marketable.