Brazil Set to Pay Interest, A Citicorp Official Says

Mixture of Cash, Brazilian Bonds Expected

NEW YORK -- Brazil will pay foreign creditor banks $900 million in back interest on July 1, William Rhodes, Citicorp's senior international executive, said Thursday.

The payment is the first installment on some $8.5 billion in interest arrears that Brazil agreed to pay banks earlier this year.

An additional $1.1 billion will be paid to banks in cash, later in the year. The balance will be paid in Brazilian government bonds, Mr. Rhodes said.

Big Chunk for U.S. Lenders

Approximately one-third of the payments will go to U.S. banks. The payments will most likely not be taken into earnings. Instead, they will be set aside as reserves against losses on loans to Brazil.

Mr. Rhodes said the payment will clear the way for Brazil to begin talks with commercial banks on reducing its estimated $45 billion medium- and long-term debts by the end of July.

Incentive for Borrowers

"The July 1 payment is an important step for Brazil toward restoring relations with the international financial community," Mr. Rhodes said in a phone interview.

Brazil and Argentina are the only two big debtor countries that have so far not reached an agreement with commercial banks to reduce their debts under an initiative launched two years ago by U.S. Treasury Secretary Nicholas F. Brady.

The initiative offers to forgive a portion of debtor countries' bank loans if they agree to economic-reform programs approved by the International Monetary Fund.

Brazil's top negotiator, Pedro Malan, and central bank governor Francesco Gros held talks with U.S. Treasury and IMF officials in Washington this week. On Thursday, Brazilian President Fernando Collor de Mello wrapped up an official four-day visit to the United States.

Brazil is seeking several billion dollars in standby borrowings from the IMF as well as collateral that would be used to back the government bonds it hopes banks will accept at a discount in exchange for their loans.

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