Brazil Flirts with Default

Like Mexico, Brazil has been wobbling beneath a crushing load of foreign debt. But unlike Mexico, Brazil is increasingly unable to repay its loans, which total some $84 billion. The threat of a Brazilian default on that debt is sending jitters through world financial markets. Last week Federal Reserve Chairman Paul Volcker called together the top executives of New York City's six largest banks, which have loaned Brazil at least $12.7 billion, to review the deteriorating situation. The moneymen at the meeting agreed that the South American country will probably need loans worth at least an additional $2.5 billion to make it through 1983. Said one banker after the three-hour session: "Brazil's financial problems are reaching the point of crisis."

Brazil's woes worsened markedly last month when the International Monetary Fund delayed an installment of a $5.8 billion rescue package that had been arranged in February. The IMF held up the $411 million payment because Brazil has failed to slow its inflation rate, which has been galloping at an annual pace of about 180%, and has neglected to take other belt-tightening steps. The agency's move led private banks to suspend payment on $633 million in new credits that had been tied to the IMF agreement.

The loan suspensions come at a time when Brazil is already starved for cash. The country has fallen nearly $1 billion in arrears on scheduled payments to banks, airlines, oil companies and other foreign firms. Meanwhile, international bankers, worried about the safety of their money, have been pulling deposits out of Brazilian banks at a rate of about $300 million a month.

The IMF demands put Brazilian leaders in the worst of all situations. Government officials last week met repeatedly to prepare a plan of sharp cutbacks in public spending. The program is due to be presented to an IMF delegation this month. But while such moves may be needed to ensure continued IMF funding, they could also aggravate tensions in a nation that is currently suffering from two years of economic stagnation. In April jobless workers rioted for three days in the country's largest city, Sao Paulo (pop. 11 million).

Now some business and government leaders are calling for Brazil to renegotiate its loan agreement with the IMF instead of trying to comply with the agency's tough austerity guidelines. "Our social problems are such that we cannot play with recession," insists Helio Beltrao, Minister for Social Security.

Washington, which had encouraged the development of the original IMF package, has been taking a wait-and-see attitude toward the latest crisis. "Everybody believes that Brazil and the IMF can, and will, come to an agreement," said one Administration official. "So everybody is disposed to wait and give them bargaining time." Indeed, even some unexpected parties are telling Brazil to honor its debts. At a recent Latin American conference, a Cuban delegate chided a Brazilian who said his country should walk away from its loans. "Comrade," said Castro's man, "you shouldn't do that." This file is automatically generated by a robot program, so viewer discretion is required.