-37- outside of Brazil's debt-restructuring process; (2) increase the probability of repayment of a portion of its outstanding Brazilian loans; and (3) reduce petitioner's obligation to make new loans to Brazil sufficient to pay at least part of the interest due on old loans. At this time (and until July 1987), Brazil's policies favored debt-equity conversion transactions. Creditors were permitted to use 1986 deposits to invest in Brazilian companies. If a creditor decided to make such an investment, the Central Bank converted 100 percent of the face value21 of the deposits, plus accrued interest, into cruzados at the official exchange rate. Pursuant to Central Bank Circular 1.492 (the implementing measure concerning debt-equity conversions), the creditor and the company in which it was investing pledged "to keep the converted sums in Brazil for the minimum period that may be established." The debt-equity conversion policies benefited Brazil by allowing it to extinguish its foreign debt by the amount of the debt converted, thereby eliminating its foreign exchange obligation with respect to that portion of its debt. The equity investment acquired as a result of a debt-equity conversion was registered at the Central Bank as registered foreign capital in the currency originally brought into Brazil by the creditor. The amount registered could be increased annually by the amount of retained earnings. Registration entitled the creditor to 21 In July 1987, the Central Bank ended the practice of converting blocked deposits at full face value.Page: Previous 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 Next
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