Buoyant Brazilian sees light at the end of the debt tunnel

Brazilian Finance Minister Ernane Galveas is a man in a tight spot who has kept a sense of humor. Mr. Galveas, a slight man with thinning black hair and mustache, is charged with negotiating Brazil's way out of the world's most severe debt crisis. His South American nation owes more than $90 billion and has fallen some $2 billion behind on its debt payments.

In a sweltering meeting room in a hotel here, Galveas recently briefed a crowd of reporters on how the International Monetary Fund, along with commercial banks, had stitched together a $11.5 billion loan package designed to let Brazil cover the interest on its debts and pay for essential imports.

But interspersed with explanations of intricate financial details, Galveas showed a penchant for straight talk and quips.

At one point he interrupted an answer to tease a photographer for sneaking out of the room while leaving a lens behind. Earlier, asked if his government planned to lower interest rates, he replied, ''We will do it at night and the (next) day it will be in the press.''

Brazil's problems, however, are taken very seriously by international bankers. The nation stands eighth in the world in manufacturing output and 14th in exports. A financial collapse would deprive the United States of one of its biggest customers and plunge world credit markets into chaos.

In May, Brazil fell out of compliance with economic performance standards required under a previous rescue plan cobbled together by the IMF and commercial banks in February. As a result, the banks and the fund stopped lending to Brazil.

The new loan package also imposes tight economic conditions on Brazil, but analysts think it will let the country come through the 1983-1984 period, although with little margin to spare.

''It looks like it will be adequate,'' says Lawrence Krause, a senior fellow at the Brookings Institution.

''One could wish it was somewhat larger, but it is in the right ballpark,'' adds John Williamson, a senior fellow at the International Institute for Economics.

Under the plan, Brazil would again have access to the three-year, $4.9 billion loan arrangement from the IMF first agreed to in February. The revised arrangement also includes $6.5 billion in new loans from commercial banks, $2.5 billion from governments in export credits, and $2 billion in government refinancing of debt Brazil owes.

The people of Brazil will pay a high price in economic austerity for the loans. To receive the funds, Brazil agreed that by the end of 1984 it would virtually eliminate its public-sector deficit, boost last year's $1 billion trade surplus to $9 billion, and slash its inflation rate from the present 152.7 percent to 55 percent. In addition, IMF negotiators sought a law, still to be voted on by the Brazilian Congress, that would hold salary increases in the next two years to 20 percent below increases in the cost of living.

Next year, Mr. Williams says, ''If things go as expected this recession in Brazil will be as severe as the Great Depression of 1930 on internal living standards.'' That level of deprivation ''could have been avoided by more financing'' from the banks and IMF, he says.

The economic pain ''is on the border of being excessive,'' adds Mr. Krause.

''It is clear there are risks of political upheaval,'' Williamson notes. And in fact there was a recent rash of food-store looting in Rio de Janeiro.

Finance Minister Galveas admits the stringent economic policies may cause short-term discomfort. ''Maybe at the first moment the restrictive fiscal policy or tight monetary policy seems to be worse than the recession,'' he says.

But he asserts that the measures taken to reduce inflation and trim the nation's balance-of-payments deficit ''are not going to hurt the Brazilian people by any means. I think we are preparing the ground to have better prospects and put the country again in the role of growth.''

And although the IMF has become quite unpopular in Brazil, Mr. Galveas defends it strongly. ''We have nothing against the IMF. We have everything in favor of it. I think the IMF is doing an important job. What they need is more support and more understanding of what they are doing.''

The loan package the IMF arranged will not be cheap. Some banks, however, now favor giving Brazil funds at a lower cost than in the loan package negotiated in February. Under it, the country was to pay roughly two percentage points over the prime rate for its commercial loans.

Next year it will be faced with an $11 billion interest bill, Mr. Galveas says. At his meeting with reporters he said the country has not asked for concessions on interest rates.

The rate banks charge can have a key effect on a nation's financial health. In a speech to the IMF-World Bank annual meeting here, Mexican Finance Minister Jesus Silva Herzog said that one additional percentage point in the cost of Latin American debt involves some $3 billion in extra interest expenses.

The Mexican official added that a decline in interest rates of three percentage points, along with a 10 percent improvement in the price of exports, would ''completely eliminate the present current-account deficits of 20 of the most heavily indebted countries.''