CONFIDENTIAL
X
27
Signature of the banks' financing package was completed on 2 November and Brazil
is now current on its interest payments to banks. $1.2 bn of existing loans were
converted into 25 year exit bonds with a coupon of 6% (about 4 percentage points
below that presently being paid on the new money).
28
Official debt auctions have been held since March and total conversions have now
reached $1.7 bn. Total swaps (including registered informal swaps) reached $5.3 bn
in mid-November; some $2bn in informal swaps have still to be registered by the
central bank (see box). Concern about round-tripping and monetary expansion led
the central bank to ban parastatals from involvement in the informal market from
late October. This move is expected to lead to a sharp reduction in conversions of
bank debt, which may nevertheless reach $8 bn (or about 7% of the total outstanding)
in 1988.
29 Four of the five SBA performance criteria are reported to have been met at
end-September; no application for a waiver for the remaining criterion has yet been
submitted to the Fund Board. Nominal end-December criteria will also be overshot
because of the worsening domestic financial and inflationary position.
Nevertheless, Nobrega has proposed an ambitious tax package aimed at securing a
small operational surplus for the "central administration" sector; if implemented
it would imply a smaller 1989 operating deficit for the public sector than the 2%
target agreed with the Fund.
Argentina
30
Argentina's trade position has also shown a substantial improvement from last
year's very poor outturn. Export volume has recovered sharply (including a strong
growth in manufactured exports) while import volume has fallen. The terms of
trade, having declined nearly 30% between 1984-87, have also partly recovered,
assisted by much higher wheat and maize prices. In the first 8 months of the year
the trade surplus was $2 1/4 bn (cf $0.9 bn in the same period of 1987) and the IBRD
expect the surplus for 1988 as a whole to top $3 bn. The current account deficit
is expected to decline to $2.3 bn (cf $4.3 bn in 1987) but to widen again in 1989 as
higher interest payments more than offset a further improvement in the trade
balance. As in Brazil, accelerating inflation has depressed real income, weakening
domestic demand and imports.
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