- 6 -
term for foreign loans which varied from 5 to 12 years. Although
the Brazilian Government sought to decrease the effects of
inflation through an indexing system, in taking out a long-term
foreign loan, a Brazilian borrower incurred a substantial risk that
a decline in the exchange rate for the cruzeiro as a result of
domestic inflation could increase the cost of the loan.
To increase foreign borrowing, the Brazilian Government
provided incentives to Brazilian borrowers in order to overcome
their reluctance to take out foreign loans. These incentives
included the pecuniary benefit, the Resolution 63 loan program, and
the Resolution 432 loan program, all of which are more fully
discussed infra.
Until about 1982, lending to Brazilian borrowers was quite
profitable for many foreign lenders, including some major U.S.
banks. The interest rate spreads (i.e., the interest rate charged
on a loan, less the cost of the loan funds to the lender) on
Brazilian loans were higher than the interest rate spreads on loans
made in many other countries. In addition, the ability to claim
foreign tax credits significantly enhanced the after-tax income
some foreign lenders derived with respect to their Brazilian loans.
C. Brazilian Regulation of Foreign Lending
Brazil imposes restrictions on the receipt and exchange of
foreign currency. By law, all loans from foreign lenders to
Brazilian borrowers must be registered with and approved by the
Central Bank. Through the registration process, the Central Bank
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011