Brazil's pounds 23bn debt accord ends crisis

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The Independent Online
BRAZIL and its bankers yesterday said a dollars 44bn ( pounds 23.3bn) debt restructuring agreement reached in the early hours of the day signalled the end of the 10-year debt crisis in the country and in Latin America generally.

William Rhodes, vice-chairman of Citicorp, which leads the 19- bank steering committee that negotiated the deal, said it marked the end of the debt crisis that has weighed on major Latin American economies since Mexico defaulted in August 1982.

The agreement would allow Brazil greater access to international capital markets, Mr Rhodes added.

Mr Rhodes has been the top bank negotiator over the decade, involved in most of the important rescheduling negotiations.

With Mexico restored to international financial respectability, the two biggest debtors in the world now appear to have turned the corner.

Marcilio Marques Moreira, Brazil's Economy Minister, said in a statement issued jointly with the banks in New York that it was a 'watershed, closing a long chapter overshadowed by foreign debt problems'.

Brazil is the third world's biggest debtor and the restructuring agreement covers the commercial bank part of its debt of more than dollars 120bn.

But the bank agreement is the critical third leg of a deal to ease the country's debt problem. An agreement with the International Monetary Fund was signed at the end of January and a pact with the Paris Club of government creditors in February.

Under the new agreement, the dollars 44bn of medium-term and long- term bank debt can be converted into guaranteed bonds and loans. Discounts of 35 per cent are available.

Banks will be able to choose from six basic instruments, but the full details of how the agreement will work are complex and will not be available until the end of August. All creditor banks have to ratify the agreement, as does the Brazilian senate.

Despite the optimism, there remains some scepticism about implementation of the agreement because of the continuing political problems in Brazil, where President Fernando Collor de Mello has been linked to an influence- peddling ring.

Brazilian shares rose in response, but one analyst said: 'People will evaluate the whole situation. We can't forget we still have a political crisis going on here.'

President Collor said the agreement took into consideration Brazil's 'capacity to pay without additional sacrifices for the whole of society'.

Brazil is in the middle of a recession caused by high interest rates and government spending cuts. Inflation is running at 22 per cent a month.

The negotiations have dragged on since they were restarted at the turn of the year after several failed attempts. Progress has been slow because of their complexity and Brazil's difficulties in finding security for all the bonds that are to be issued.

Banks will be offered 30-year discount bonds with a 35 per cent discount rate, par bonds aimed at permanent interest-rate relief over 30 years, front-loaded interest reduction bonds and a separate capitalisation bond offering temporary interest-rate relief, a new money option and a restructuring option.

Principal and interest collateral will be phased in, and there will be access to Brazil's privatisation programme and an exchange offer for certain 1988 new money instruments.