Brazil Says Moratorium on Debt Payments Is Possible

President Jose Sarney said in an interview published Friday that Brazil would declare a new moratorium on its foreign debt if it is unable to meet obligations to creditors.

Sarney told the O Estado de Sao Paulo newspaper that the government would not rule out declaring a moratorium on Brazil’s $115-billion debt, or at least using this possibility as a way to pressure creditors during negotiations.

“The payment of the foreign debt is a logical question. If there’s money, pay. If there’s no money, don’t pay,” Sarney said.

Brazil declared a moratorium on $67 billion of its commercial debt in February, 1987, but ended it last year after reaching a new agreement with the International Monetary Fund.

Speculation that Brazil is on the verge of a new debt moratorium was fueled by statements by Finance Minister Mailson Nobrega that Brazil could suspend interest payments if reserves fell to a critical level.

In the interview, Sarney said Brazil’s level of reserves was at a “difficult point.”

“The creditors know the situation and they know better than anyone that the payments will have to remain within the limits of our reality. There is no magic,” the president said.

The Finance Ministry has said the country’s reserves are about $5 billion. Bankers estimate them at $4 billion.

The debt problem has also come to the fore since the government last week launched a new economic austerity plan designed to beat inflation of nearly 1,000%.

“Of what use are measures to control inflation, the public deficit and the internal debt if they are not accompanied by measures in the foreign area? Everything is narrowly connected,” Sarney said.