-35-
the transaction herein, discussed infra). In April 1987, the
majority of Brazilian debt was not traded on the secondary market.
The Brazilian Government did not have access to the secondary
market because the debt restructuring agreements (such as the DFA's)
had sharing clauses requiring the recipient of any payments to share
the proceeds with all of the other creditors that were parties to
such agreements.
2. The Cruzado Plan
In February 1986, Brazil adopted the "Cruzado Plan" as part of
an economic stabilization program to reduce the country's high
inflation. A price freeze took effect, and the cruzado replaced the
cruzeiro as Brazil's currency on February 28, 1986. The exchange was
made at one cruzado (Cz$) to 1,000 cruzeiros.19 Brazilian currency
was not freely exchangeable through official Brazilian channels into
non-Brazilian currency. The Cruzado Plan was collapsing by late
1986.
3. Moratorium on Interest
On February 20, 1987, Brazil declared a moratorium on the
payment of interest on its external indebtedness. In response to
19 On Feb. 28, 1986, the official exchange rate of
cruzados to U.S. dollars was set at $1 to Cz$13.84. The 1986
average official exchange rate was $1 to Cz$13.654.
The official rate was the dominant exchange rate in Brazil.
A "parallel" rate also existed (which was published in Brazilian
newspapers) but was technically illegal, and none of the hundreds
of Brazil's creditors, including petitioner, could exchange
blocked deposits for cruzados in the parallel market. The spread
between the official rate and parallel rate typically was
approximately 30 percent.
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