BRASILIA, June 11 (Reuters) - Brazil's government has drastically reduced the amount of funds it will borrow from Sweden this year to pay for a fighter jet deal with Saab but talks to lower interest rates are ongoing, the defense ministry said on Thursday.
To reduce financing costs in the midst of a fiscal crunch, Brazil has cut from 1 billion reais ($318 million) to 200 million the credit it will take this year from Sweden's export credit agency SEK, a spokeswoman said, confirming statements made on Wednesday by Defense Minister Jaques Wagner.
A failure to agree on financing terms for the contract could force Brazil and Saab to renegotiate the $5.4 billion sale of 36 Gripen fighter jets.
"The Swedish government understands Brazil's fiscal situation and has agreed to this," the spokeswoman said of the cut in financing for 2015.
She said Sweden has not agreed to lower interest rates set in a sales contract signed last year and negotiations continue.
Wagner told Brazilian media that Brazil had to reduce the financing costs of the Saab Gripen deal due to a budget freeze imposed in Finance Minister Joaquim Levy's austerity agenda.
Swedish Enterprise Minister Mikael Damberg was in Brasilia last week to discuss with Levy and Wagner the financing contract that has to be concluded by June 24, eight months after the plane deal was signed.
Wagner said the negotiations over the financing costs will not undo the overall agreement to renew the Brazilian Air Force's aging fighter fleet with Saab Gripens.
A spokesman for SEK in Stockholm, Edvard Unsgaard, said the agency has submitted a tender for the financing deal with Brazil, but declined to comment further as the contract has not been finalized.
Saab said Brazil was in negotiations with SEK on a financing package and the company was not part of the talks.
Saab press officer Sebastian Carlsson said he expected the main agreement signed in October to go through as planned. "We don't know anything that suggests otherwise," he said.
The first Gripens should be delivered to Brazil in 2019. Saab plans to set up a Brazilian assembly line producing the fighter jets through 2024.
$1 = 3.1406 Brazilian reais Reporting by Anthony Boadle in Brasilia and by Daniel Dickson and Johan Ahlander in Stockholm; Editing by Andrew Hay