Brazil Making Slow Progress on Debt Plan

A tentative plan to end Brazil’s nine-month debt payment moratorium is a step to ease its stand-off with creditor banks, but a long-term pact to restructure the nation’s massive foreign debt remains a major hurdle.

Analysts regard the proposal, which sets a January deadline for negotiation of a long-term plan, as largely a symbolic, eleventh-hour move aimed at keeping regulators from forcing banks to downgrade the value of their Brazilian loans.

Endorsement of the proposal by all of Brazil’s bank lenders is not assured. And even then, the banks probably will not count the interest payments as part of their income until a long-term plan is reached.

“It’s really not progress,” said George Salem, of Prudential-Bache Securities. “I guess it prevented some deterioration in relations between the banks and Brazil.”

Following a lengthy Thursday night meeting that capped weeks of negotiations, Brazil and a committee of its major international bank creditors announced that Brazil would pay arrears on $67 billion in medium- and long-term private debt.

Halted Payments on Feb. 20

Brazil halted interest payments on that debt on Feb. 20, saying it needed to preserve its shrinking foreign reserves.

Funding to make the back payments would come from a combination of $1.5 billion in Brazilian central bank reserves and $3 billion in new short-term bank credit.

Brazil, in turn, agreed to seek an economic plan with the International Monetary Fund, a major sticking point in previous negotiations with the banks.

The committee and Brazil also set a January deadline for negotiation of a long-term agreement for restructuring Brazil’s foreign debt, which at $112 billion is the biggest in the Third World.

Brazil’s hundreds of other bank creditors worldwide still must endorse the plan.

In addition, Brazil’s Finance Ministry has cautioned that it will not make new financing from the banks conditional on an IMF plan, and noted that interest payments for 1988 have yet to be negotiated.

“It can be seen that important advances have been made but that only with the final agreement . . . will there come an end to the suspension of interest payments,” the ministry said in a statement issued in Brasilia.

Finance minister Luiz Carlos Bresser Pereira has said Brazil could take up an IMF program after debt negotiations with creditor banks are concluded and provided it did not compromise Brazilian “sovereignty.”

“It’s really just a start,” said Stephan Berman, of County Securities USA, a New York investment firm.