Brazil Reportedly Considering Suspending Bank Loan Payments

Engulfed in a financial crisis, Brazil wants to temporarily suspend payment on its huge debt to private foreign banks, Brazilian newspapers reported Thursday.

About $70 billion of this nation’s total foreign debt, calculated at $109 billion, is owed to private banks. U.S. banks hold the bulk of the private loan paper.

Some newspapers said the government already has decided to suspend payments on the private bank debt for 90 days. But Marco Antonio Brandao, spokesman for the Finance Ministry, said, “Nothing has been decided yet.”

Speaking by telephone from Brasilia, the national capital, Brandao said Brazil expects to begin negotiations on the private bank debt next week. He said that Brazil’s goal is to reduce the current level of payment and that “we are going to negotiate for everything possible.”

Only a Hypothesis

A temporary suspension of payments is “one of the hypotheses” under consideration, Brandao said.

President Jose Sarney has attempted to avoid the kind of confrontation with foreign creditors that a unilateral moratorium on payments could provoke. But in recent weeks, as the country’s financial problems have deepened, he has faced increased public demands for at least a partial suspension of debt payments.

Even leaders of Sarney’s own party, the Brazilian Democratic Movement, have called for delaying some debt repayments.

Marcilio Moreira, the Brazilian ambassador to the United States, came to Brazil this week for a day of meetings and then returned to Washington, reportedly with instructions to explain his country’s desire for a suspension in payments.

A foreign diplomat in Brazil said he did not expect U.S. officials to oppose the proposal. “My guess is that they would respond fairly sympathetically,” the envoy said.

Earlier this week, a Brazilian Cabinet minister acknowledged to reporters that the country could not meet its debt obligation.

“This year Brazil will not have resources to face its foreign commitments,” said Jose Castelo Branco, minister of industry and commerce.

During the past several months, Brazil’s monthly trade surplus has shrunk dramatically. The surplus for January, 1987, was $129 million, down from $701 million in January, 1986.

Currently, about $800 million in foreign debt obligations come due each month.

Brazil’s foreign currency reserves dropped from $5.6 billion in October to an estimated $3.8 billion.