VOLCKER SAYS BRAZIL DEBT MOVE WILL NOT HURT BANKS
Federal Reserve Board
Chairman Paul Volcker said the suspension by Brazil of its
foreign debt payments would not undermine U.S. Banks.
    But he told Reuters after a speech to educators that it was
in the interest of U.S. Banks to complete debt financing plans
soon with Brazil and other debtor nations.
    "I don't think it's going to undermine public confidence in
the banking system from Brazil alone," he said. "But I would like
to see further progress made on this whole situation."
    Brazil announced last month it was temporarily suspending
interest payments on 68 billion dlrs of debt owed to private
banks, opening a new round in the five-year-old debt crisis.
    Last week, Ecuador suspended interest payments to private
foreign banks, which hold about two-thirds of its total 8.3
billion dlr foreign debt, citing severe damage to its oil
industry caused by an earthquake.
    Citicorp <CCI> the largest U.S. Bank, said last week that
it might have to reclassify most of its 4.6 billion dlrs in
Brazilian loans as non-performing, thus removing them as part
of the bank's expected income-producing assets.
    Analysts said such a move would sharply reduce Citicorp's
profits and might result in similar measures by Brazil's other
bank creditors.
    Volcker said he believed Brazil and Ecuador want to
maintain continuity in their debt service.
    "It's fundamentally in their best interest. If they can get
the financing and refinancing that's necessary, they may be
able to make their economies grow again."
    Asked whether he expected other nations to follow the path
taken by Brazil and Ecuador, he said the two countries were
special cases. He did not elaborate.
 REUTER
