Will Honor Foreign Debt, Brazil Says : Brazil Will Honor Debts, Adviser Says

Brazil will honor all of its $108-billion foreign debt and American and European banks face no long-term losses because of last week’s suspension of part of its interest payments, a senior presidential adviser said today.

“We are not demanding canceling or reduction of our debts,” Rubens Ricupero, chief foreign affairs adviser to President Jose Sarney, said in a televised interview.

Ricupero, a senior career diplomat, said Brazil’s negotiating position will be revealed when officials meet with representatives of private creditor banks, probably next month, to discuss its decision to stop paying dollar interest on about $70 billion of its debts.

The decision was made because of falling export earnings. It applies only to loans from private banks, most of them in America and Europe. Interest is being deposited in Brazil in Brazilian currency, and will be available for withdrawal in dollars only when Brazil reaches some new agreement with creditors about refinancing its debt.

Doesn’t Expect Subsidies

Ricupero said Brazil will not ask banks for loans at below-market interest rates, and does not expect subsidies either from governments in creditor countries or from international organizations such as the World Bank.

Also, Ricupero said, Brazil’s proposals for resolving the payments suspension “will not imply any net losses for the (private) banks.”

Finance Minister Dilson Funaro said over the weekend that Brazil will only resume paying dollar interest when banks agree to a long-term restructuring package to avoid annual renegotiations.

He said Brazil wants to reduce annual interest to a level that leaves enough cash for internal investment and growth. The government said it wants to reduce poverty in the nation of 140 million people.

“What we want,” Ricupero said, “is to avoid this continued bleeding, this siphoning-off of resources” into interest payments.

Brazil last year paid $9.3 billion in interest.

Funaro said the portion of debt suspended is worth about $5.6 billion in interest over a full year, meaning that the country will hold back an average of $467 million per month during the suspension.