Pacing Repayment

RIO DE JANEIRO, Brazil - Brazil, the largest debtor in the Third World, has taken a radical new stance with the banks renegotiating its $108 billion foreign debt.

In February, the Brazilian government announced it would unilaterally stop interest payments while negotiations on the debt take place and one month earlier it banned the Mellon Bank from operating here on grounds it had obstructed the negotiation process.

Although the suspension of interest payments could have serious implications for the country's creditors, many bankers view the interest suspension as an attempt by Brazilian President Jose Sarney to gain a better bargaining position. In the end, they say, the government will have no choice but to agree to a compromise.

The government's move came weeks after the Mellon Bank was told it no longer had authorization to operate in Brazil. The bank, with S500 million in outstanding loans to the country, is among Brazil's smaller U.S. creditors.

Last July, when Brazil rescheduled its loan repayments with its short-term creditors, Mellon refused to sign the final accord. In return, the Brazilian government decided to suspend the institution's authorization to operate in the country.

"It is not right that a bank which is making trouble for us outside the country be able to install itself here and benefit peacefully from our banking market," said then Central Bank President Fernao Bracher.

The action against Mellon, confirmed by the bank's representative in this country, Glenn Ficklinger, will be applied to all banks that refuse to help Brazil renegotiate its $108 billion debt, Bracher warned.

The government's position caused panic among the country's major creditors - Chase Manhattan, Citibank and the Bank of America - which all maintain large and lucrative financial centers here.

The local Citibank branch, which last year earned 150 percent from its investments in Brazil and is considered among the most profitable subsidiaries, declined to comment officially on the government's threats.

But a bank official who asked not to be identified said, "It won't go beyond threats."

The official also said that Brazil "wouldn't have the courage to act (as it did against Mellon) with banks that loan it many billions of dollars."

The issue is being handled very quietly by the Central Bank. At first Bracher refused to reveal the names of other international banks that would be asked to leave the country. When Bracher resigned, however, he left Finance Minister Dilson Funaro in control and Funaro is said to want to take a harder line on banks standing in the way of negotiations.

Another clear example of the government's new stance toward foreign investors and bankers came as early as March 1986 when West Germany's Mercedes Benz, the largest car manufacturer in Brazil, was told it would be expelled if it carried out threats to boycott the government's anti-inflation "cruzado plan."

In response to the plan's price freeze as well as other provisions it opposed, the firm decided to give "vacations" to all 15,000 of its employees here in order to halt production.

The president of the Brazilian subsidy, Werner Lechner, was immediately summoned to Brasilia and warned by Labor Minister Almir Pazzianotta that the firm would be expelled from the country if he did not keep the factory running. Lechner complied and the boycott was abandoned.

The government says that Mellon Bank and Mercedes Benz are just the first foreign firms to experience the impact of the Sarney administration's efforts to put aside Brazil's "subservient" past.

Brazil will no longer be the "foreign investor's paradise" that it was under military rule in the 1970s, said a Sarney administration spokesperson.