Reversing a major reduction in lending to Brazil, foreign banks are likely soon to increase their short-term credit lines to that country, senior U.S. bankers said this week.

"The Brazilian government has asked banks to maintain their trade and interbank lines," said William Rhodes, a Citibank vice chairman and a key figure in talks between U.S. banks and Brazil. "The response has been positive."

Mr. Rhodes, here this week to attend the annual meeting of the Inter- American Development Bank, said banks are likely to increase their short- term credit lines to Brazil in the next few weeks as details of a Brazilian government stabilization program become clear.

Brazil's foreign creditor banks have recently slashed short-term credit lines to the country, to less than $30 billion from about $50 billion at the end of the second quarter last year.

The cut in credit, coupled with a massive outflow of private funds as foreign investors lost confidence in the country, triggered a sharp recession. It also set off fears that Latin America would suffer a financial collapse similar to those in Southeast Asia and Russia the past two years.

Bankers, however, emphasized this week that the current crisis pales in comparison to the 1980s, when Latin American countries defaulted on hundreds of billions of dollars in bank loans.

"These countries have carried out significant structural reforms," said Charles Dallara, managing director of the Institute of International Finance, a banking think tank in Washington.

Though the economic situation in Latin America will remain difficult this year, bankers said, confidence is growing that it will not deteriorate further.

"We'll still have volatility and bumps in the road, but within three to six months, I think we'll see that March was a turning point," said Brian O'Neill, managing director and head of Latin American operations at Chase Manhattan Corp.

"The banks that wanted to reduce their lending or get out have probably already done so," he said.

Bankers said that behind their willingness to consider favorably Brazil's request to maintain its credit lines is what they see as a new willingness in the country to come to grips with its financial problems.

But they added that private corporations in Latin America will still find it difficult to borrow funds and that any new lending will be on much tougher terms.

"The problem in Latin America came from excess liquidity, incorrect risk premiums, and bad credit judgment," Mr. Rhodes said. "The problem today is how to stimulate capital flows back into the region."

Latin America remains heavily dependent on foreign capital for development, said bankers at the meeting. The cut in bank lending, combined with an unwillingness by investors around the globe to buy Latin bond issues, is expected to trigger a 1.5% decline in Latin America's gross domestic product this year. That reduction includes estimates of a 2% decline in Argentina and 4.8% in Brazil.

"A majority believe foreign investment in the region will either stay steady or increase in the next six months," BankBoston Corp. said in a survey released here Sunday, "but it will take one to two years for capital market activities to increase significantly in the region."

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