U.S. OFFICIALS SAY BRAZIL SHOULD DEAL WITH BANKS
The U.S. is sticking for the moment
to its policy that Brazil, which two weeks ago suspended debt
payments to private banks, should deal with its creditors and
not with governments, U.S. officials said.
    "I don't see any desire here to scurry around and help
Brazil until we get a better sense of what they are trying to
do," a senior administration official stated.
    "Brazil has to do business through the banks at this point,"
said another official following an assessment of that country's
latest debt crisis.
    The official, who asked that his name not be used, said the
National Security Council, the Treasury and State departments
and other agencies held a meeting yesterday to discuss the
situation.
    In a related development, small regional banks that have
made loans to Brazil and other heavily-indebted Latin American
countries, will meet with Federal Reserve Chairman Paul Volcker
here tomorrow.
    Brazil, with about 108 billion dlrs in debt, shocked banks
late last month when it stopped interest payments on 68 billion
dlrs owed to them until it can work out its problems.
    Brazil's trade surplus, its main source of foreign exchange
has dwindled in recent months, making it difficult to service
its debt.
    The official said the interagency meeting was called to
discuss "the general debt situation and compare notes on
(Brazilian Finance Minister Dilson) Funaro."
    Funaro, who told reporters here that he wanted a political
discussion with industrialized nations on Brazil's debt
problems in an effort to obtain more and faster lending from
official sources, held discussions here on Friday with Volcker,
Treasury Secretary James Baker and other officials.
    Another senior administration official said he was
perplexed by Funaro's decision to discuss the latest crisis
with governments and not with creditor banks, at a time when
Brazil is in danger of losing short-term credit lines.
    "We are not clear at all on his tactics. To me it seems
bizarre, just bizarre," the official said.
    One official today described Funaro's argument as "nonsense,"
and said there had been a considerable flow of funds to Brazil,
for which that country was in arrears.
    Funaro has said Brazil acted to protect its reserves but
wanted to avoid a confrontation.
    The consensus among administration officials seems to be
that Brazil's latest debt crisis is the result of the domestic
economic problems.
    "Brazil is a special case, but there's no doubt they would
not be in the mess they're in if they had not screwed-up their
economic policy," a senior official added.
    Several of the regional banks that will meet with Volcker
tomorrow declined to comment because the talks will be held at
the Fed's suggestion.
    "Since they are the hosts, we feel it's up to them if they
want to say something," one regional bank official said.
    But other banking sources said that regional banks, many of
which are refusing to continue lending to Latin America, are
dissatisfied with decisions of major banks such as Citibank, in
the refinancing of foreign debts.
    The sources added that Volcker, for his part, is
dissatisfied with some major banks' refusal to make interest
rate concessions to Brazil and other Latin American debtors,
and would like to see smaller creditor banks take a more actve
role in the rescheduling process.
   
 Reuter
