Brazilian Officials to Meet With Lenders

In an effort to ease Brazil’s financial crisis, Brazilian officials will meet Tuesday in New York with representatives of major U.S. and foreign banks who are refusing to renew tens of billions of dollars in loans to private Brazilian companies caught up in the crisis.

At the meeting, arranged by interested U.S. officials, the Brazilians hope to persuade the lenders to roll over existing loans when they come due rather than insist on immediate repayment. The Brazilians want to persuade the lenders that they can safely do so by spelling out stringent actions the Brazilian government is taking to keep the country afloat financially.

Foreign lenders and investors have lost confidence in Brazil’s economic and financial prospects since an earlier crisis devastated Argentina’s economy. Also, some of the leading candidates running for president in an October election have so far not indicated they would follow the policies of the current administration, including its tight fiscal and monetary actions.

Brazil has been hit by a “contagion effect” from Argentina, a banking source said. Banks that have suffered large losses in Argentina want to reduce their exposure in Latin America. Thus, many of the banks have been canceling lines of credit in Brazil. It could not be learned Sunday the amount of credit that had been canceled.

Major lenders, such as Citigroup and ABN AMRO of the Netherlands, are expected to attend Tuesday’s meeting. The site of the meeting was not specified.

Treasury Department officials said Sunday they were aware of the meeting.

Separately, Brazilian President Fernando Henrique Cardoso plans to meet today with each of the three candidates seeking to succeed him. The failure of the candidates to fully endorse the stringent fiscal and monetary policies agreed to by Cardoso, a former finance minister, as condition for receiving $30 billion in aid from the International Monetary Fund has further eroded international confidence that Brazil’s government and many of its major companies would be able to continue to pay their debts.

Marcos DePaiva, secretary for international affairs at Brazil’s Finance Ministry, said that Brazil’s successful proposal to the IMF for assistance was explicitly structured to address the issue of a changing government by providing incentives for the next president to continue the required policies.

Just $3 billion of the $30 billion in IMF aid is to be distributed soon, he said. Disbursement of $3 billion more would come only after a review in November of Brazil’s progress at keeping inflation low and running a “primary budget surplus” equal to 3.75% of Brazil’s gross domestic product. A primary surplus counts all expenditures except interest payments on government debt.

A key incentive would be the gradual disbursement of the IMF funds only after continued quarterly policy reviews, DePaiva said.