Brazil and Banks Discuss Plan to Avert Regulatory Decision to Reclassify Loans
NEW YORK -- Brazil and its major bank creditors are discussing a plan to clear at least some of the more than $3 billion of interest arrears on the country's foreign bank debt, banking sources said.</br></br>The plan, which would require Brazil to commit itself to agreeing with the International Monetary Fund on an economic program, is being sponsored by the U.S. Treasury and Federal Reserve Board, the sources indicated. It is a last-minute attempt to avert a pending U.S. regulatory decision that could classify banks' Brazilian loans as value-impaired, which would require the banks to write down these credits by 10%. That would mean that the banks would have to take corresponding charges to their capital accounts.</br></br>Under the proposed plan, both Brazil and its banks would pay money into an escrow account at either the Federal Reserve Bank of New York or the Swiss-based Bank for International Settlements. This money would be used to clear some -- perhaps all -- of the interest arrears, the sources added. The amount that each side would contribute hasn't been decided yet, but banking sources estimate that about two-thirds of any sum would be contributed by the banks. The banks' contribution would be classified as new loans.</br></br>Spokesmen for the Treasury and the Federal Reserve declined to comment, as did a spokesman for Citicorp, which chairs the committee of Brazil's major bank creditors.</br></br>The proposed plan, apparently worked out last week in talks in Washington between Brazil's chief debt negotiator, Fernao Bracher, and Fed and Treasury officials, was discussed at a meeting of Brazil and its bank creditors in New York late yesterday. Mr. Bracher was unavailable for comment.