Brazilian, Bank Officials Plan to Talk Next Week Nation's Leaders Want Debt Rolled Over
By John M. Berry Washington Post Staff Writer Tuesday, August 20, 2002; Page E01 Brazilian officials plan to meet in New York City next week, rather than today as some participants had expected, with representatives of major U.S. and foreign banks reluctant to roll over loans to Brazilian companies because of the country's financial crisis, sources familiar with the planning said. The Brazilians hope to use the meeting to persuade the lenders to renew loans as they expire rather than demanding repayment. While some of the loans are to the Brazilian government and related agencies, most are to private corporations. Yesterday, to further assure foreign lenders of the country's creditworthiness, Brazil's president, Fernando Henrique Cardoso, met separately with the four candidates vying to succeed him in an October election. Caroso sought the candidates' assurances that they would continue his program of running primary government budget surpluses, which do not count interest payments on government debt. The budget stringency is the key condition for receiving $30 billion in fresh lending announced by the International Monetary Fund earlier this month. One of the candidates, Ciro Gomes, said the situation is very grave. He blamed the current government's economic approach. "Not without regret, I told President Cardoso that my [eventual] government will be committed to fiscal austerity as foreseen in the 2003 budget guidelines." Another leading candidate, Luiz Inacio "Lula" da Silva, also made a statement meant to reassure investors about his intentions. "Markets welcomed comments from Ciro Gomes and Lula da Silva," said Jose Miguel Moreno of Stone & McCarthy, a financial markets research firm. The statements eased concerns about the defeat of the current government's candidate, Jose Serra, who is trailing badly in the polls. By late yesterday, the statements had contributed to a 2 percent increase in the Brazilian currency, the real, to 3.1 per U.S. dollar, according to the Bloomberg News Service. The Brazilian bond market also rallied. Sources said yesterday that details of the talks between Brazil and its creditors were still being worked out. IMF spokesman Thomas Dawson said the fund would probably send a representative to the talks to provide information and monitor progress, as it has routinely done in other such negotiations in the past. Officials of the Bush administration are taking a hands-off approach to the negotiations, preferring to leave things up to the parties involved and the IMF. "We're not involved in it," said Michele Davis, the Treasury spokeswoman. "Negotiations between creditors and debtors go on all the time. There is nothing that requires us to be part of it." During the Clinton administration, by contrast, top Treasury officials routinely threatened to withhold any new public-sector loans to countries facing financial trouble unless big U.S. and foreign banks also agreed to put some money on the table -- either by agreeing to roll over existing loans or by lowering interest payments. The IMF itself also favors "bailing in" the private sector as part of any bailout package. But so far it has been unable to come up with a workable mechanism to require it, relying instead on voluntary negotiations. Although the U.S. government may not be involved in the talks, U.S. economic interests certainly are. A number of banks, including Citigroup Inc., J.P. Morgan Chase & Co. and FleetBoston Financial Corp., have billions of dollars of loan exposure in Latin America that makes them particularly vulnerable to a financial meltdown in the region. In addition, the ability of U.S. corporations to export products to Brazil depends on the ability of Brazilian firms to get loans to finance the purchases -- financing that, in many instances, will be difficult to obtain without renegotiation of previous loans.
