Funaro's Departure Could Lead to Brazil Debt Deal

The resignation of Finance Minister Dilson Funaro is bound to focus attention on whether Brazil will now adopt a more flexible debt stance and move towards an accord with creditors, bankers and political analysts said.

With Funaro in charge, Brazil’s relations with creditors sank to a low ebb, they said.

Bankers told anti-Funaro jokes from Sao Paulo to New York and economic analysts said the personal animosity between the minister and U.S. Bankers was a real obstacle to reaching agreement on rescheduling Brazil’s 111 billion dlr debt.

Commenting on Funaro, a foreign banker here recently told Reuters, “They (banks) see his removal pretty much as a precondition for getting serious negotiations under way.”

Funaro angered the banks in February by suspending interest payment on Brazil’s 68 billion dlr bank debt.

There was also a question of personal style. Bankers disliked Funaro’s aloof demeanor and in private heatedly accused him of arrogance and inflexibility.

However, Funaro did not fall because he upset foreign bankers but rather because his Cruzado Plan price freeze last year was a massive flop, economically and politically.

However, it is in the domain of the debt and Brazil’s relation with creditors that his departure will have the most closely-watched international repercussion, bankers said.

It became part of Funaro’s trademark that he would have no truck with the International Monetary Fund (IMF), thus effectively blocking a debt agreement.

He argued that if Brazil sought the help of the IMF, the Fund would lay down conditions which would lead to recession.

Funaro and others who supported this position had memories of the IMF austerity program in Brazil in the early 1980s, a period when hungry crowds stormed supermarkets.

The foreign banker in Sao Paulo said, “I think Brazil could have an agreement with the IMF which would allow (it) acceptable growth.”

Argentina, working with the IMF, won excellent terms for a major portion of its 50 billion dlr debt earlier this month.

Given the IMF role in the Argentine accord, a U.S. Diplomat here said the agreement had been extremely damaging for Funaro because it showed that cooperation with the IMF bore fruit.

Mexico has also taken the IMF path and, earlier than Argentina, clinched a favourable pioneering agreement with creditors on its 100 billion dlr debt.

Brazil is now the only one of the three biggest Latin American debtors not to have a debt agreement.

Some Brazilian opinion, particularly in the business community, is favourable to an IMF accord.

A leading newspaper, Jornal do Brazil, carried a report from Washington over the weekend saying it was a myth the IMF brought recession and the best moment for an accord was now. As it happens, a routine IMF mission is visiting Brasilia.

The government has repeatedly dismissed speculation it is considering any major change in debt policy and political analysts caution against expecting changes on the IMF issue.

The government of President Jose Sarney has gained a reputation for chronic indecisiveness and some analysts believe the government will turn to the IMF only if it comes to the conclusion there really is no option.

But such a policy shift looks more and more likely before too long in the eyes of many analysts.

One major political obstacle, Funaro, is no longer in the picture and the economic pressures on Brazil are growing.

The sharp drop in the trade surplus, which triggered Brazil’s present debt crisis, shows no sign of being reversed. In the first quarter of 1987 Brazil chalked up a surplus of only 526 mln dlrs, just a fraction of the 2.47 billion dlr surplus it had in the same period last year.

Brazilian officials concede that time is not on their side in the debt crisis.

“Brazil has an interest in resolving this problem as rapidly as possible,” Central Bank President Francisco Gros said on Friday.