Brazil’s Suspension Creates Stir : Debtor Nations Consider Next Move

Venezuela, which resumes talks with creditor banks in New York this week, has declined comment on Brazil’s suspension of interest payments on its debt to foreign banks.

But a member of the Venezuelan team that negotiated an accord last year with foreign creditors said Brazil’s move demonstrates that a debtor nation’s ability to repay depends on that country’s export earnings.

The New York talks are intended to reschedule two thirds of Venezuela’s $32-billion foreign debt, the fourth-largest in Latin America after those of Brazil, Mexico and Argentina.

“I have nothing to declare,” Finance Minister Manuel Azpurua was quoted as saying Saturday when reporters asked him to comment on the Brazilian move announced Friday.

Even so, experts agreed that Venezuela would closely watch developments arising from Brazil’s decision and its impact on its own negotiations with creditor banks.

Venezuela has asked creditor banks for better terms, including a lower interest rate, to repay the $21.2 billion refinanced last year.

Argentina’s top treasury official, meanwhile, has threatened to suspend interest payments on the country’s $53-billion debt if creditor banks do not come up with a $2.15-billion loan.

Treasury Secretary Mario Brodersohn said in the local daily La Nacion Saturday that any amount less than $2.15 billion would make it impossible for Argentina to meet growth projections for this year “and we will not accept this.”

“We will give priority to domestic growth before continuing to meet foreign commitments,” said Brodersohn, repeating previous threats.

Brodersohn said he would fly to Brasilia today to discuss “strategy for debt negotiations” with Brazilian Finance Minister Dilson Funaro.

Funaro said Saturday that his country will resume paying interest to overseas banks holding most of the nation’s $108 billion foreign debt after it renegotiates with the banks.

Brazil’s negotiations with creditors are set to begin in two or three weeks.

Brazil owes about $70 billion to foreign private banks, $10 billion to foreign governments and $28 billion to international lending agencies. The biggest creditors are U.S. banks, such as Citibank, Chase Manhattan and Morgan Guaranty.

On Friday, President Jose Sarney declared that Brazil would suspend indefinitely interest payments to foreign banks. He said Brazil was buying time “to avoid political instability, recession, unemployment and social crisis.”