Brazil Takes Firm Stance on Debt Status

More than a year behind on interest payments, Brazil is assuming a tough position for scheduled negotiations on its huge debt to private foreign banks.

“Brazil will pay only what is compatible with its economic and financial stability and its growth needs,” chief Brazilian negotiator Jorio Dauster said in a newspaper interview over the weekend.

Talks are to start Oct. 10. With a total foreign debt of about $115 billion, Brazil owes private foreign banks about $8 billion in overdue interest on $70 billion in loans.

Dauster said that if the banks insist on payment of overdue interest before renegotiating debt structure, “I close the drawer and that’s it. What are they going to do? The days of gunboats are gone. No one forces Brazil to pay, which doesn’t mean Brazil doesn’t want to pay.”

He said Brazil paid $60 billion in foreign debt interest and principal over the past seven years. “What we had was the tail of the debt wagging the dog of the economy,” he said.

Brazil stopped paying interest last year when its foreign reserves dropped to a level considered risky by officials. Reserves currently stand at more than $8 billion, but Central Bank President Ibrahim Eris said he wants them to reach $12 billion.

When President Fernando Collor de Mello took office last March, Brazilian inflation was more than 800% a month. Collor has imposed strict austerity measures to control inflation, which is still running at 12% a month, and the economy has stopped growing.

Collor said last week in a speech to the Chicago Council on Foreign Relations that in meeting foreign debt obligations, his administration will “give priority to the undelayable resumption of Brazil’s economic growth.”