When Brazil and foreign banks reached a debt-reduction accord this month after 20 months of agonizing fits and starts, some bankers heaved a sigh of relief that the Third World debt crisis was ending.

Yet many are still holding their breath, wondering whether the complicated deal, offering six options for reducing some $44 billion in debt, will fly.

The biggest uncertainty is whether Brazil will be able to come up with $3.2 billion to guarantee the bonds it hopes to exchange for old bank loans.

Brazil has offered to provide $1.6 billion out of its own reserves, provided banks and international agencies like the World Bank come up with an equal amount.

It is still far from certain that banks and international agencies will cough up the cash. And they certainly won't unless Brazil adopts the economic reforms that the International Monetary Fund has mandated as a precondition for financial aid.

Stability a Key Factor

And that, along with Brazil's ability to pay interest on the bonds it will issue in exchange for the loans, depends on whether there is enough political stability in Brazil to implement economic reforms.

Bankers have good reason to be worried, since Brazil has defaulted on its previous restructuring agreements, signed in 1988.

With Brazilian president Fernando Collor facing possible impeachment proceedings for alleged corruption, no one is sure the current Brazilian administration has the will or the clout to increase taxes, cut spending, and take other fiscal steps sought by the IMF.

Economy Minister Could Go

If Mr. Collor goes, his economy minister, Marcilio Marques Moreira, may too.

Mr. Moreira, an orthodox economist, is popular with foreign bankers, who believe he is one of the few people capable of putting Brazil back on course. His departure could significantly undermine confidence in Brazil's ability to manage its economic problems.

"We're keeping our fingers crossed," said one senior international banker in New York. "If they don't get an IMF program in place, they won't get the funding."

Other issues also cast doubt over whether the deal will fly.

The Brazilian Senate needs to approve the agreement, and quick action is by no means certain.

Unlike similar debt reduction agreements with Mexico, Venezuela, and Argentina, Brazil has obtained a formal right to cancel the entire accord if too many banks pick debt-reduction options that require larger amounts of collateral.

This is no minor point, Interest rates are sliding and many of the 600 banks and institutions in on the deal are inclined to take par bonds - or bonds exchanged at full face value for loans - that carry a steadily rising interest rate.

This means Brazil could need a lot more collateral than it has anticipated, since bonds exchanged at face value require more funding.

The fall in interest rates also means that Brazil may have to pay more than it expected for the 30-year zero-coupon U.S. Treasury bonds it plans to use for collateral, since the price of the bonds will rise as interest rates decline.

Both Brazil and its creditors have a lot to lose if the deal falls through.

U.S. banks stand to lose hundreds of millions in renewed interest payments and will not be able to recover loss reserves set aside against more than $5 billion in Brazilian loans. And for its part, Brazil risks a complete shutoff in foreign financing.

Cautious Optimism

Despite the stumbling blocks, bankers are maintaining a public stance of cautious optimism. They note Brazil's current attractiveness to foreign investment. The country now has more than $18 billion in hard currency reserves, or more than enough to back the debt agreement.

Since the guarantees will be phased in over two years, bankers say there is still time to work out whatever problems might crop up.

"The Brazilians feel they will be able to meet the targets set by the IMF," said William Rhodes, a vice chairman of Citicorp and head of the bank advisory committee on Brazil.

The agreement "strengthens the hand of Marcilio Marques Moreira in being enable to enact reforms necessary to meet those targets." Mr. Rhodes noted.

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