WASHINGTON -- Brazil's debt-reduction deal will take at least six months longer to complete than previously estimated, according to senior Brazilian officials and U.S. bankers close to the negotiations.

The slow progress is bad news for Citicorp, Chemical Banking Corp., and a handful of other money-center banks waiting for Brazil to pay back hundreds of millions of dollars in overdue interest.

Late Next Year

The lenders had hoped to start booking the interest payments early next year, possibly in the first quarter. But now it looks as if the $44 billion debt-reduction deal is unlikely to take effect before the third quarter, according to Arminio Fraga, head of international operations at the Central Bank of Brazil. Mr. Fraga spoke to bankers at the annual International Monetary Fund/-World Bank meeting here.

"We were probably overoptimistic on Brazil," conceded a U.S. banking source close to the negotiations.

The big U.S. banks are eager to conclude a pact not only because of the interest payments, but also to free excess reserves that have been allocated against Brazilian loans. Those reserves could then be applied against other credits, reducing the need for future provisions and thereby bolstering earnings.

A Second Blow

Under the debt-reduction plan, banks can exchange their problem loans with Brazil for collateralized Brazilian government bonds. The agreement, which was approved in principle in July, is the last in a series of major deals worked out among banks and Third World countries since 1989 under an initiative launched by U.S. Treasury Secretary Nicholas F. Brady.

The delay is the second major blow in recent months to banks' hopes of finally ending the decade-long world debt crisis that began when Mexico defaulted on its commercial bank debt in August 1982.

Argentina, which had hoped to complete a similar deal last month covering its $23 billion in debt to foreign commercial banks, has been unable to follow through on an agreement with its banks because of a shortfall in the funding needed to guarantee bonds it planned to issue in exchange for bank loans. (See related article on page 12.)

Term Sheet Completed

Brazil and the bank advisory committee announced Monday afternoon that they had completed the term sheet, or detailed agreement, to reduce Brazil's foreign bank debt.

However, Mr. Fraga said that it would take another three weeks to translate the term sheet into Portuguese and six to eight weeks for the Brazilian Senate to approve the deal.

Banks will have two months to review the agreement, he added, and to submit their choices among the options offered.

The choices will then be reviewed by Brazil and are subject to renewed negotiation.

Earlier Timetable

Banks and Brazilian officials had said this summer that they hoped to have the term sheet completed in August and approved by the Brazilian Senate early in September. That would have meant that the deal could be done early next year.

Bankers said an added uncertainty that could further delay completing the agreement is Brazil's inability to adopt an economic program that satisfies the International Monetary Fund.

IMF approval is critical because, without it, Brazil would be unable to obtain about $1.6 billion in financing from international lending agencies out of a total of $3.4 billion it needs to buy 30-year, zero-coupon U.S. Treasury securities to guarantee the bonds it will issue in exchange for bank loans.

Skepticism over Politics

Although Mr. Fraga expressed confidence that IMF support would be forthcoming, banking sources said the agency is more likely to grant support in principle but to withhold funding while awaiting reforms.

U.S. banking sources and Brazilian bankers also expressed skepticism over early ratification by the Brazilian Senate, especially since that legislative body is embroiled in a constitutional crisis amid efforts to impeach Brazilian President Fernando Collor on charges of bribery and corruption.

"The Brazilian debt deal is dead," said Lawrence Cohn, a bank analyst at PaineWebber Inc. "The Brazilian Congress has got bigger fish to fry, and I'm not convinced this would pass even under normal circumstances."Still WaitingFor PaymentBiggest U.S. lenders to Brazil,as of March 31Citicorp $3.2 billionChemical $3.2 billionChase $1.5 billionBankAmerica $1.4 billionSource: Keefe, Bruyette & Woods Inc.

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