Treasury Secretary James Baker took a relatively optimistic view of Brazil's decision to stop paying interest on most of its commercial debt.
Paul Volcker, the Federal Reserve Board chairman, cautioned, however, that the foreign debt problems of some developing countries again have reached a critical stage.If Brazil's economic problems are not resolved, he told the Senate Budget Committee, some U.S. banks could be hurt.
Mr. Baker, in testimony before a Senate Appropriations subcommittee, said we regret Brazil's halting its interest payments, but he termed the Brazilian action only temporary.
The Treasury Department, he said, fully expects that Brazil and its creditor banks will come to terms over a new financing package.
Mr. Baker discounted a suggestion that Brazil's moratorium could mark the start of a debtors' cartel of developing countries refusing to pay their foreign debts.
Separately, George Gould, a Treasury undersecretary, told the National Association of Business Economists that we continue to be optimistic that we are not going to have an international debt cartel . . . of the magnitude to have an impact on the capital of U.S. banks.
Mr. Baker contended that in general U.S. banks, by increasing their capital in recent years, are in much better shape than a few years ago to
absorb payments problems involving debtor nations.
Mr. Volcker said it was urgent that Brazil develop a new economic program, on which it could renegotiate its roughly $67 billion in medium- and long-term debt with commercial banks.
He noted a recent slowing of debtor country negotiations with the commercial banks, for either new bank credits or the rescheduling of outstanding loans.
In London, bankers expressed concern about the impact on the international banking system shoul d other countries follow suit.
A "blip" such as the Brazilian moratorium is only to be expected from time to time, a leading London banker commented. All banks have built up very significant provisions against bad and doubtful debts since the shock news
from Mexico in 1982 that it could no longer afford to service its huge debt.
But should Brazil's action lead to other debtor nations such as Argentina also stopping interest payments, then the situation "could become really rather acute," John Melbourn, deputy general manager of National Westminster Bank's international banking division, said.
European banks also are conscious of the fact that U.S. banks have a far larger exposure in Latin America, and that the risk of a domino effect should one bank fail cannot be discounted.
In other debt-related developments, Mario Brodersohn, Argentine treasury secretary, was expected to hold talks in Brazil's capital Tuesday with his Brazilian counterpart, Dilson Funaro.
Mr. Brodersohn said he would be meeting later in the week with Argentina's creditor banks in New York. Last Friday he told journalists in Buenos Aires that Argentina would suspend interest payments on its $52 billion debt if international lenders did not provide another $2.15 billion.