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Brazil's Meirelles says states to get 3-year reprieve in debt deal

Tuesday, February 21, 2017 - 09:40

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Brazilian Finance Minister Henrique Meirelles said cash-strapped states that sign up for a debt relief program would get three years to repay loans owed to the federal government and to private banks as long as they commit to drastic spending curbs.

[BRASILIA] Brazilian Finance Minister Henrique Meirelles said cash-strapped states that sign up for a debt relief program would get three years to repay loans owed to the federal government and to private banks as long as they commit to drastic spending curbs.

Mr Meirelles told Globo TV's cable news network on Monday that the bill with the terms of the debt deal would be sent to Congress on Tuesday.

The bill is vital for Rio de Janeiro state to overcome its fiscal crisis and will require states to freeze wage hikes for employees and stop new hiring, while allowing them to privatize their banks, electrical utilities and sanitation companies.

States will not be able to give tax breaks to companies struggling with a two-year recession and will have to reduce current tax breaks by 20 per cent, Globo News reported.

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In return, they can put off debt payments for three years as of the moment the deal becomes law. "Any state that joins the recovery plan and carries out the adjustment measures will have a series of prerogatives,"Meirelles said in the television interview. "Debts with the federal government will be postponed, the payments will be suspended, and also with the private sector. All debts with the financial sector and banks will be extended on the same terms as debts with the federal government," he said.

The program will help shore up the finances of Brazilian states that are experiencing crippling budget crises because of ballooning deficits and falling tax revenues. Rio de Janeiro has not paid salaries for police and doctors since last year.

The speaker of the lower house of Congress, Rodrigo Maia, said he aimed to put the debt bill to a floor vote in the first half of March. Mr Maia told reporters after meeting with Meirelles that its passage would require persuading lawmakers from states with financial troubles they need to tighten their belts.

President Michel Temer vetoed a debt relief bill last year after lawmakers stripped it of austerity requirements.

The state assembly in Rio, which is in the most critical financial shape, refused to vote on spending cuts required to join the debt relief plan. Rio's government even sought a Supreme Court decision to free it from spending and debt limits.

In a surprise vote on Monday, the assembly voted to authorize the privatization of the state water and sewer company, CEDAE, a key condition to land a loan from a consortium of private banks and a first step toward balancing Rio's books.

Approval of other austerity measures by the state remains unclear.

REUTERS

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