Brazil Predicts Pact Will Help Economy Grow : Refinancing Should Aid in Luring New Capital

RIO DE JANEIRO — Finance Minister Mailson Nobrega predicted Thursday that a new debt refinancing agreement between Brazil and private foreign banks will help stimulate investment and growth in the Brazilian economy.

Nobrega said Brazil’s immediate goal is not to pay off its $120-billion foreign debt but to maintain good financial relations abroad so that it can attract new capital.

“A country that imports capital, such as Brazil, cannot have the goal of paying off its foreign debt,” he said in a television interview. “It has the goal of creating conditions so that it (the debt) is served, as they say, paying interest, principal, receiving more. A country pays off its foreign debt only when it becomes an exporter of capital,” he said.

“But it is not the moment yet for Brazil to become an exporter of capital. Our whole struggle is to once again absorb foreign capital, to be able to add it to our savings, invest more and develop the country more.”

The new debt agreement, announced this week by Brazil and a committee of 14 creditor banks, obligates banks to provide $5.2 billion in new funds that will help Brazil make interest payments due through mid-1993. The agreement also reschedules repayment of $63.6 billion in principal, 94% of the country’s medium- and long-term debt to private foreign banks. The principal will be carried at a reduced interest rate of 0.8125% over the London interbank rate, called Libor. Repayment will be over 20 years, with an eight-year grace period.

Interest Payment Today

The banks also agreed to renew about $15 billion in short-term credits for financing Brazilian trade transactions, adding $600 million to the credit line. The total amount involved in the agreement is more than $80 billion.

“It is the biggest financial agreement ever reached by a Third World country,” Nobrega said. To become final, the pact must be approved by about 700 banks that have current loans to Brazil.

Today, Brazil will pay the banks $350 million in overdue March interest. By the end of June, Brazil is to pay $1 billion for April and May interest, but $300 million of that will come from the banks as new funds.

Nobrega said June and July interest payments will depend on a bridge loan that Brazil is seeking from “some foreign governments.” He estimated the amount of the loan at $500 million to $700 million.

When Brazil declared a moratorium on payments on its debt to private foreign banks in February, 1987, authorities said the measure was to keep from paying the banks with money needed to finance the country’s economic growth. Since then, industrial growth has fallen into a slump, but Brazil’s monthly trade surplus has grown to more than $1.5 billion a month.

‘Removes Obstacle’

Nobrega said it will be possible to continuing making debt payments under the new agreement without depleting foreign reserves. And he said he expects better relations with the banks to help end a drought in foreign investment and loans.

“The agreement removes an important obstacle that we have in our relationship with the international community, and it should contribute to re-establishing flows of resources to the country,” he said. “For example, we are going to have $1.5 billion in new money from the International Monetary Fund.”

For producers and investors in Brazil, he said: “This represents the elimination of an uncertainty. Because before this, there was that doubt: Will Brazil confront the banks? Will it reach an agreement? As long as it was not reached, you were losing investment.”

He said a safeguard clause in the agreement will permit Brazil to reopen negotiations with the foreign banks in the event of an external shock, such as increased international interest rates or higher petroleum prices, that reduces Brazil’s balance of payments. He said the safeguard clause is one of the broadest every negotiated by a debtor country.