Brazil May Make Symbolic Payment on Its Bank Debt

Brazil is ready to make an interest payment on its foreign bank debt this week if banks recognize the country’s need for economic growth, Central Bank President Fernando Milliet said Monday.

Brazil suspended interest payments on its $70-billion bank debt in February, saying it did not have enough hard currency to use for interest payments because of a deterioration in its trade balance. Its trade position has since improved significantly.

If the impasse continues, Brazil would have more than $4 billion of interest arrears by the end of the year. It owes foreign debtors a total of $113 billion.

Banks have been pressing Brazil for at least partial payment of interest due.

Milliet told reporters at the Central Bank: “This is a very important week. We are close to a political agreement with the banks.

“It is possible that this week we will make a symbolic payment either with the World Bank or the Bank of International Settlements.

“But there has to be a clear manifestation from the banks concerning the country’s need for growth.”

The daily newspaper O Globo reported that Brazil would make an interest payment Monday.

If Brazil does not pay anything, U.S. banking regulators might reclassify Brazilian loans as value-impaired, requiring banks to set aside reserves against losses.

In the second quarter of this year major U.S. banks, led by Citicorp, set aside large reserves for potentially bad Third World loans, including those of Brazil.

Such a reclassification would effectively place Brazil alongside Peru as one of the outcasts of the international financial system.

Finance Minister Luiz Carlos Bresser Pereira has said on many occasions that Brazil would not make a token payment before a debt agreement was reached. But foreign bankers have long believed that a last-minute token payment was in the cards.

Debt negotiator Fernao Bracher has been holding talks with creditors in New York, and Brazilian officials say that these negotiations have been making progress.

Milliet said on Monday that the Brazilian government expected a definitive debt accord before the end of the year.