Don’t Count on the Government Rescuing You, Brazil Tells States

Brazilian governors go to Brasília - Fabio Rodrigues Pozzebom/ABr

Brazilian governors go to Brasília - Fabio Rodrigues Pozzebom/ABr Governors of at least 14 Brazilian states have threatened to declare a state of financial emergency unless they are compensated for losses incurred with the shrinking support from the federal government.

At a nearly two and a half hour meeting with Finance Minister Henrique Meirelles, they urged him to provide a bailout to make up for the states’ waning revenues.

The governors asked the Brazilian government to advance them US$ 2.12 billion in consideration of repatriated funds expected to go into the federal coffers by the end of October.

Their original proposal was a full compensation for the US$ 4.25 billion decline in federal transfers to the Revenue-Sharing Fund for the States in 2016 compared to last year.

Brazilian governors go to Brasília - Fabio Rodrigues Pozzebom/ABr

But Meirelles was quoted by Paraíba Governor Ricardo Coutinho as saying the Treasury cannot afford to bail states out at this time, arguing the economic team are waiting to see how much money will be available from repatriations to find out if the US$ 51.71 billion primary deficit target for 2016 can be met.

“The problem is that those in this country that have done their job of incurring lower debts, cutting spending in the face of a three-year crisis that has knocked down GDP by 7%, now face the risk of seeing their efforts wasted for lack of a crucial aid,” Coutinho complained.

Rio Governor Luiz Fernando Pezão attended the meeting to join the other governors’ demands. His state experienced the same problems in June, when he declared a state of financial emergency and got a US$ 879.5 million bailout from the federal government.

Finance Minister

In August, after the lower house approved a bill on restructuring the debts of states and the Federal District with the federal government, Finance Minister Henrique Meirelles said that the states’ priority should be to focus on the result.

The piece of legislation allows debt payment to be made in 20 years, provided that certain fiscal constraints are met. Meirelles said that governors have in their hands all the tools required for observing the spending ceiling.

“Focus on the result is key. The fiscal adjustment in the states is what’s relevant. As is the case with the federal government, it’s the ceiling for the increase in public spending for the upcoming years,” the minister said, pointing out that if a state disregards the ceiling, it must once again pay the debt in its original terms.

“Fortunately, Brazil is under a democracy, and congress members have the prerogative to make relevant decisions, with the government having the duty of indicating the measures,” Meirelles noted.

In a note released in the morning, the minister declared that the negotiation with the states are “the first concrete step towards the structural adjustment of Brazilian public debts in decades.”

Meirelles mentioned that the confidence of economic agents in the Brazilian economy “is starting to grow vigorously,” adding that the Brazilian crisis was born in the country, unlike the international economic crisis of 2008 and the crisis of the 30’s, with the collapse of the New York stock exchange.

“In his judgment, however, reaching the right diagnosis was instrumental, since the confidence of businesspeople and consumers “was plunging systematically up to some two months ago.”

ABr

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