Dollar Reserves Are Running Low : Brazil Suspends Payments on Its $112-Billion Foreign Debt
Brazil has suspended or delayed most payments on its $112-billion foreign debt and has halted repatriation of capital and profits by foreign investors.
“So far, the country is in a situation of an undeclared moratorium,” the Rio newspaper Jornal do Brasil said Wednesday.
Officials have avoided calling the measures a moratorium but have said they are necessary to stop a drain on this country’s foreign reserves. Some analysts speculate that the government also hopes that the measures will increase pressure on the International Monetary Fund to give Brazil an emergency loan.
Banking sources say the suspension includes interest payments on long- and medium-term loans from private foreign banks, which hold about three-fourths of Brazil’s foreign debt. The rest is held by foreign governments and international institutions such as the IMF.
Bankers said repayment of short-term credits for imports and exports are unaffected by the measures. And Sergio Amaral, Finance Ministry secretary for international affairs, said the government will not delay payments to the IMF, the World Bank or the Inter-American Development Bank. A suspension of those payments could stop disbursement of funds previously committed to Brazil.
But the central bank has delayed payment of $812 million that was due Monday on loans from foreign governments of the so-called Paris Club, including the United States. Officials said, however, that Paris Club payments will be resumed within a week.
‘Going to Dole It Out’
There was no clear indication of how long interest payments to private foreign banks and repatriation of funds by foreign investors would be delayed. Paul Bedelik, an American investment banker in Rio, predicted that payments would be released on a piecemeal basis as foreign reserves allow.
“Brazil is running out of dollars, so they are going to dole it out, ration out the ones they have,” Bedelik said in an interview. “I would think interest and principal payments to private banks is far at the end of the list.”
Brazil imposed a moratorium on interest payments to private foreign banks in February, 1987, when its foreign reserves dropped to less than $4 billion, and resumed payments at the beginning of 1988 after negotiating a new agreement with the banks.
Unlike the 1987 moratorium, the current measures also halt repatriation of profits or dividends by foreign investors and loan repayments to private foreign companies. Corporate transfers abroad amounted to $2 billion in the first half of this year, compared to $1.8 billion in all of 1988.
Bedelik said the suspension of transfers to foreign companies and payments to private banks may be aimed partly at persuading the firms to use their influence in favor of new IMF funding. An IMF team recently left Brazil without reaching any agreement with the government.
Finance Minister Mailson Nobrega said last week that if the IMF did not loan new funds to Brazil, the country might have to suspend foreign debt service in September, when payments of about $3 billion are due.
“We are going to preserve our reserves at all costs,” Nobrega said on a television program.
At the end of last week, the government announced that all foreign currency transfers abroad must now go through the central bank. At the same time, the government announced a 12% devaluation of the Brazilian currency that is expected to result in increased exports.
An increase in exports would help build up foreign reserves, currently estimated at $5.6 billion. Authorities are said to hope that reserves can be maintained at $7 billion to avoid a foreign exchange crisis that could fuel Brazilian inflation, already raging at 25% a month.