Circular No. 186 - External Debt - Supplementary Standards to Resolution 229 of September 1, 1972

CIRCULAR NO. 000186

We communicate that the Board of Directors of this Bank, in a session held on September 1, 1972, in view of the provisions of Resolution No. 229 of September 1, 1972, and considering the deliberation of the National Monetary Council in a session on the same date, decided to issue the following standards:

I - External loan operations, under the conditions admitted by the aforementioned Resolution, may be contracted with companies in general established in the Country - including mixed-economy companies - or public companies, which engage in industrial and commercial activities directly linked to the manufacture, processing, or circulation of goods and the provision of services.

II - Value distribution companies, brokerage firms, administration or participation companies - including credit card administration - insurance and capitalization companies, as well as financial institutions covered in Article 17 of Law No. 4,595 of December 31, 1964, may not carry out operations in the manner established in this Circular.

III - The initial contracting of the external loan, the internal renewal with the same debtor, or the novation with successive borrowers will always depend on the prior authorization of the Management of Supervision and Registration of Foreign Capital (FIRCE), in accordance with Resolution No. 125 of September 12, 1969, including regarding the interest rate adjusted between the parties, to be in effect for the indicated period, after verifying its adequacy to the levels then prevailing in the international market.

IV - The internal redemption period for each operation may not be less than eighteen months.

V - Respecting the payment scheme approved by the Central Bank of Brazil for the return of the foreign currency object of the transaction, there will be, at any time, only one borrower, who will be responsible:

a) for the amortization, by transfer abroad, of any installments due during the validity of the contract under their responsibility;

b) for the payment, in a single lump sum, of the balance in foreign currency, on the date fixed for its internal redemption, in a bank authorized to operate in foreign exchange, indicated by the creditor in due time.

VI - The redemption referred to in item "b" of the previous item will be processed through simultaneous symbolic operations of purchase and sale of foreign exchange at the rates in effect on the date of its realization, from whose contracts it must appear:

a) in the sale by the bank - as buyer: the borrower who extinguishes their obligation;

b) in the purchase by the bank - as seller: the new borrower or, in the case provided for in item III of Resolution No. 229, the Central Bank of Brazil, for credit to the creditor itself.

VII - In the symbolic foreign exchange purchase operation, when the Central Bank appears as seller, the foreign exchange coverage rate will be applied, and the intervening bank must promote the settlement of the contract by the first business day following its realization.

VIII - At the time of the redemption referred to in item "b" of item V, it will be the responsibility of the banking establishment that carries out the symbolic purchase and sale of foreign exchange operations to retain the respective Registration Certificate.

IX - For the purposes provided for in items III and IV of Resolution No. 229 of September 1, 1972, the Foreign Exchange Operations Management will promote the registration of the debt balance in an account in foreign currency, in the name of the external creditor, with interest counted from the day of the deposit referred to in item VII of this Circular, whose rate will be fixed by the Central Bank based on the quotes prevailing in the interbank market of London, for deposits in the currency of the loan.

X - At the request of the bank indicated by the creditor, the Central Bank, when any of the hypotheses admitted in item V of Resolution No. 229 occurs, will remit directly to the external creditor the interest referred to in the previous item, after the deduction of the income tax due.

XI - While the resources remain in the said account, it will also be the responsibility of the bank indicated by the creditor to request the Central Bank, at the time of the maturity of the amortizations provided for in the respective Registration Certificate, the remittance of these values to the creditor abroad.

XII - The reinvestment in the Country in a new loan of the balance of the aforementioned account in foreign currency - released by the Central Bank at the request of the bank indicated by the creditor - may only be processed at its full value and through simultaneous symbolic operations of purchase and sale of foreign exchange, from whose contracts it must appear:

a) in the purchase by the bank - as seller: the new borrower;

b) in the sale by the bank - as buyer: the Central Bank of Brazil.

XIII - The symbolic foreign exchange sale operation to the Central Bank will be carried out at the pass-through rate, and the respective countervalue in cruzeiros will be paid at the time of its settlement to the passing bank.

XIV - All previous instructions regarding prior authorization for external loans and their registration remain in force and apply to the operations mentioned here.

Brasília-DF, September 1, 1972

Paulo H. Pereira Lira
Director