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phase III of the Brazilian foreign debt restructuring, with the
Brazilian Government being the guarantor of the Central Bank's
obligations under these agreements. The major international banks
involved in negotiating the Brazilian debt restructuring wanted the
Central Bank to be the borrower, as the Central Bank, unlike the
Brazilian Government, could be sued in foreign courts.
Additionally, the Central Bank held all of Brazil's foreign
currency reserves.
There were perhaps as many as 600 foreign lenders holding
outstanding Brazilian loans. Collectively, these lenders had
issued thousands of outstanding loans to numerous Brazilian
borrowers.
As it was not feasible to have the foreign lenders and their
Brazilian borrowers renegotiate all these loans, the deposit
facility agreement (DFA) mechanism was devised. The prior
outstanding loans would be left in place. When a prior loan
borrower made a loan payment, the payment would be deposited with
and held by the Central Bank pursuant to a new loan entered into by
the Central Bank and the foreign lender.
As a further part of the restructuring, Brazil also needed to
obtain additional foreign capital to enable its economy to
function. Much of this additional foreign capital or new money was
furnished under the credit guaranty agreement (CGA) entered into by
the Central Bank and some of the foreign lenders. Only the 170
foreign lenders holding the largest amounts of outstanding
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