Loading ...Brazil Faces Default Risk After Missing Venezuela Loan Alert
Brazil’s government needs swift congressional action to avoid defaulting on loan guarantees it has made to Venezuela and Mozambique.
Legislators must approve the use of up to 1.5 billion reais ($424 million) to honor loans that banks made as part of a policy to finance exports. Brasilia itself is on the hook because Caracas is poised to miss a May 8 deadline for a $275 million debt installment. Wary that legislators may not return to work after Tuesday’s Labor Day holiday, President Michel Temer canceled a trip to Asia this week to supervise the episode his office said could cause “immense damage to Brazil’s economy.”
The imbroglio is the result of a series of missteps by Brazilian policy makers, from a cumbersome arrangement for export loan guarantees to a gross underestimation of the credit risk. Only days before Venezuela missed a previous loan payment to Brazil last August, top budget ministry officials in Brasilia flatly dismissed the chance that their Caribbean neighbor could default, thereby failing to account for the risk in this year’s budget.