Deal to Include $6 Billion in New Financing : Brazil, Banks Reach Preliminary Debt Accord

Western banks and Brazil announced agreement Sunday on important elements of a loan restructuring package for the Third World’s most indebted country, which owes more than $114 billion abroad.

Banking sources familiar with the agreement, who spoke on the condition that they not be identified by name, said the negotiations reflected a surprising level of cooperation from Brazil, which last year toughened its position over loan repayment terms and aroused considerable concern in the banking industry.

Fernando Milliet, president of Brazil’s central bank, and William R. Rhodes, chairman of the Bank Advisory Committee for Brazil, said under the arrangement Brazil will receive more than $6 billion in new financing to help make foreign debt payments through the first half of next year.

Both sides also agreed that the interest rate for repaying that money will be 13/16ths of 1% over the London Interbank Offered Rate, a benchmark for determining foreign debt payments.

In addition, Brazil will make a payment next week of about $700 million from its own reserves to cover interest on foreign bank loans for the remainder of January and all of February, Milliet and Rhodes said in a press statement.

“The amount of interest they’re paying is considerably more than the market had expected,” said one source knowledgeable about the negotiations. “The market had expected they would wrap up the month of January, but they’re adding the month of February. They’re starting to make interest payments more often and in larger amounts than we’d foreseen.”

Concerned about its deteriorating economy and reliance on outside money, Brazil hasn’t repaid any principal on its foreign debt since 1983. In February, 1987, it decreed a moratorium on interest payments but late last year agreed to resume them.

With the agreement announced Sunday, the country’s interest payments will be current for all 1988 and the last quarter of 1987. Brazil still owes back-interest from Feb. 20, 1987, when it first declared the moratorium, up to Sept. 30, 1987.

Plans for repaying the remaining delinquent interest are still under negotiation.

The banking sources said the package should be ready by the time a meeting of foreign bank creditors and Latin debtor nations convenes March 20 in Caracas, Venezuela.

Rhodes said the negotiations and the $700-million interest payment represent “significant progress in restoring Brazil’s traditionally good relations with its commercial bank creditors.”