By MATT MURRAY and PAMELA DRUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL
NEW YORK -- Major international banks are signaling they have little
appetite for opening large credit lines to the Brazilian government, even as the International Monetary Fund and Group of Seven officials push the private sector to play a big role in rescuing the nation's teetering economy.
Several bankers said in recent interviews they don't want to make loans to Brazil as part of an initial package, which is expected to be unveiled starting next week. Instead, bankers, whose institutions already have been badly stung by losses as investors have fled emerging markets this year, advocate a more cautious, "wait-and-see" approach.
"There are things the banks don't want to do in the current environment because of the risks," said one U.S. banker based in Sao Paulo. "The banks are not going to band together to provide a big balance-of-payments financing that will complement a multilateral package from the official sector. I don't see that happening."
By talking of such a limited role, bankers may be trying to lower market expectations of a large private-sector bailout.
U.S. officials are pressing banks to play a stepped-up role in helping ailing countries. Earlier this month, Treasury Secretary Robert Rubin said the U.S. would advocate "more direct private-sector involvement at times of crisis, with the provision of private liquidity alongside official funds."
He added: "Looking ahead, private sector burden-sharing is critical, not only because there will not be sufficient official money for all circumstances, but also because it is absolutely essential in inducing market discipline and lessening the so-called moral hazard issue." Some past aid packages have been criticized for bailing international banks out of bad loans, implying that banks wouldn't have to pay the full price for excessive lending.
Need to Boost Reserves
Brazilian officials have stressed that they probably wouldn't need to use the credit line, estimated at some $30 billion or more, now being hammered out by multilateral groups. But they say they need to back up the country's badly depleted foreign reserves to show investors that Brazil won't be pushed into devaluing its currency, the real, a move that analysts say would destabilize economies across the region. The aid package hinges in part on Brazil narrowing its massive budget deficit, which is now at more than 7% of the country's gross domestic product.
To be sure, even bankers concede that should Brazil's package fail to impress investors, the private sector might be called upon to rush in with a smaller coordinated package of its own. Though no formal negotiations on such a last-ditch effort are continuing, leading representatives of U.S. banks last month agreed to back up a Brazilian bailout if need be at a meeting at the New York headquarters of J.P. Morgan & Co.
Nonetheless, skittish U.S. bankers, whose institutions have the greatest exposure to Brazil, are privately arguing that their early participation could drain confidence instead of instilling it. "Brazilians don't want it to be pictured that they're in dire straits, like Asia," said one high-ranking bank official. A large role for banks in the initial stage would send that message, he said.
He and other bankers said their institutions can still help Brazil shore up its currency and lure back foreign investors, after government reforms and a multilateral aid package are in place. These more modest measures might include buying bonds or loans guaranteed by multilateral institutions such as the World Bank, or buying bonds backed by revenue from the future sale of state-owned companies.
Another possibility: Some bankers say they might suspend repayment on outstanding debts from existing facilities, a move that would ease Brazil's debt burden but wouldn't require the banks to risk new money. They stressed that any new lending would have to be at market rates, which have shot up in recent months.
Role Is Still Undecided
Bankers insist that they haven't yet been asked by Brazil's government to do more. "The situation is that the Brazilians are deciding what role they want the banks to play," said a high-ranking bank official.
Said another banker: "What is happening is individual banks are bringing individual ideas to Brazil in how to access markets and how to be able to generate additional cash flow in order to bolster their reserve positions."
Though that is a smaller role than has been envisioned by international officials, bankers insist they won't dictate Brazilian policy.
Bankers say they are also watching to see what the aid package looks like and how financial markets react to it. But some warned that no matter what, there will be little appetite to pitch in. In a best-case scenario, the package would boost investor confidence in Brazil, and the banks' help wouldn't be needed. On the other hand, if the package fails to calm troubled markets, bankers say they won't want to step into the storm.
"Banks are not going to step into a situation where you see a black hole," another U.S.-based banker said, adding: "If Brazil is able to put together a credible fiscal package that has critical support, the need for actual financing is going to be minimal." |
