Brazilian bind: debt payment vs. growth
Later this year, the government of Brazil will try to do something it has not attempted since the beginning of the debt crisis in 1982: renegotiate its entire $100 billion foreign debt with bank and government creditors. Brazil is the developing world's biggest debtor. The negotiations will involve a lot of technical complexity, but they are being watched mainly as a political struggle. They will also be a major test of objective news reporting.
There is already a significant difference between what New York bankers are telling American and Brazilian journalists. For United States consumption, the bankers are saying that the Brazilian government has already decided on its ``real'' negotiating strategy, which is to try to return as fast as possible to what the bankers call a program of ``voluntary lending.''
``The real signal we are getting,'' one New York banker says, ``is that they want to get back to market borrowing, and this is quite the opposite of any demands,'' such as lending tied to commodity prices, which was part of the recent Mexican package, or more-radical proposals for ceilings on debt-service payments.
The message: Debt relief is irrelevant, because the Brazilians don't really want it.
At the same time, though, another New York banker was telling Brazilian reporters that the Brazilian government hasn't decided on its strategy, but that it ought to elect the voluntary-lending option.
``Brazil has to decide,'' the unnamed banker said, ``if it wants to obtain the maximum possible'' in this year's negotiations, ``or prepare its return to the voluntary market. . . . It is important for the system that Brazil, which is the biggest debtor, again have a normal relationship with the market.''
The message: An accommodating approach could yield the Brazilians better long-range results.
Recent statements by Brazilian financial officials don't square easily, either. Finance Minister Dilson Funaro told US reporters during the recent World Bank-International Monetary Fund meetings in Washington that Brazil and the banks would probably resume voluntary lending during 1987.
But in interviews with Brazilian journalists, Mr. Funaro's top advisers have been stressing the importance of limiting the country's debt payments in 1987 to a maximum of 2.5 percent of gross national product.
They say that to avoid supply bottlenecks, the Brazilian economy needs to import significantly more capital goods and raw materials than it has been doing. And they add that the country needs to maintain food imports at a high level until supply can be improved in that sector as well.
These advisers refer to a gap of $4 billion to $5 billion between present levels of imports and the levels they say are necessary to maintain non-inflationary growth. Raising imports implies shrinking the level of debt-service payments -- hence the figure of 2.5 percent of GNP.
Funaro's advisers say this growth-oriented approach is compatible with a return to voluntary lending, but the bankers say it is not.
There are differences on how deeply this choice will affect Brazilian politics. According to Roberto Macedo, director of the economics faculty at the University of Sao Paulo, the present debate -- between growth with a smaller trade surplus and demand restraint with a more accommodating position toward the banks -- is fundamental.
``It is a confrontation,'' he says, ``between the old and the new republic,'' referring to the conversion to democratic government last year from 21 years of military rule.
Others think this is an exaggeration. The mass-circulation magazine Veja, for example, says the government is merely ``fabricating a situation of conflict on the internal level with the idea that this will strengthen it at the negotiating table.''
The real Brazilian position isn't the only unknown. No one really knows what ``voluntary lending'' means in this context, either. Officially, banks and government creditors say they require some form of monitoring of the Brazilian economy by the IMF before they will lend voluntarily. But according to a veteran Brazilian observer, M'ario Henrique Simonsen, ``The presence of the IMF in the negotiations is the last thing the banks care about.''
Mr. Simonsen, who was finance minister in an earlier government, says the real key to a global agreement with voluntary lending is the approval of US Federal Reserve chairman Paul A. Volcker.
According to this interpretation, the debate over IMF approval and ``voluntary lending'' merely disguises the broader political and trade negotiations between the US and Brazil.
The reason these issues are being so closely analyzed, even before the talks are officially under way, is that there is a threat of failure. Luiz Gonzaga Belluzzo, a special adviser to the finance minister, put it this way in a recent interview in Washington: ``Take food production. In the crisis, the government had a strategy that sharply reduced the supply of food for domestic consumption. With the fall in demand brought about by the wage freeze and other measures, the government established a return that was favorable for export crops, as against production for domestic consumption. Now, with the Cruzado Plan, we have dramatically increased domestic demand, and it is impossible to return to recession and unemployment without serious social problems.''
For their part, the big money-center banks fear that the concessions granted to Mexico in recent negotiations will become generalized or radicalized and create pressure for systematic write-downs and debt relief.
The talks probably won't start until after the Nov. 15 gubernatorial and congressional elections in Brazil. Those results can't be predicted, either. Polls show that about 35 percent of the electorate is undecided.