- 27 -
have to be placed into nonperforming status. (Generally, for bank
regulatory accounting purposes, once a bank loan is placed into
nonperforming status and a specified period of time elapses, among
other things, previously accrued but uncollected interest income
with respect to the loan must be written down by the bank. Such
writedowns could cause the international financial community to
lose confidence in Brazil's ability to repay its foreign debt.)
Moreover, if any foreign lender were to declare its outstanding
Brazilian loans to be in default, Brazil's foreign debt crisis then
could well escalate out of control, with disastrous consequences
for a number of major international banks and the international
banking system.
Phase II
During the first half of 1983, Brazil and its foreign lenders
realized that the phase I restructuring would not be sufficient to
solve Brazil's financial problems. They thus began negotiation of
what became known as the phase II restructuring. At about this
time, the head of the International Monetary Fund (IMF) announced
that he was conditioning Brazil's receipt of any further financial
assistance from the IMF upon at least 90 percent of Brazil's
outstanding foreign debt that was owed to private foreign lenders
being restructured.
On January 27, 1984, Brazil and its foreign lenders entered
into four agreements to effectuate the phase II restructuring of
Brazil's foreign debt: (1) A phase II DFA that covered the
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