Brazil: $15 bn offered to state govts as emergency debt relief through 2018

The debt relief should give some breathing room to heavily indebted states that have struggled to pay public servants and maintain social programs.

By: Reuters | Brasilia | Published: June 21, 2016 7:54 am
interim President Michel Temer, president michel termer, termer, brazil debt, Interim President Michel Temer had a meeting with Finance Minister Henrique Meirelles after which it was decided that states would receive a six-month grace period on their debts to the federal government.

Brazil on June 21 offered its state governments 50 billion reais ($15 billion) of emergency debt relief over the next three years in an effort to shore up public services amid the worst recession since the 1930s.

Finance Minister Henrique Meirelles announced, after a meeting among state governors and interim President Michel Temer, that states would receive a six-month grace period on their debts to the federal government, followed by a year and a half of reduced payments.

The debt relief should give some breathing room to heavily indebted states that have struggled to pay public servants and maintain social programs, notably Rio de Janeiro which is due to host the Olympics in August.

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Meirelles said the deal would cost the federal government about 20 billion reais this year and 15 billion reais in both 2017 and 2018. The accord marked a compromise between the two-year grace period requested by many states and the partial relief proposed by the federal government.

The crisis facing Brazilian states took center stage on Friday when Rio’s governor declared a state of financial emergency, requesting federal funds to help fulfill obligations for public services during the Games.

Meirelles said that governors agreed at the meeting with Temer on the need for separate treatment for Rio due to the Olympics and they would not follow suit in declaring a financial emergency.

The finance minister also said governors expressed their support for limiting growth in states’ public spending to the inflation of the prior year under a proposed constitutional amendment, the same rule proposed for federal spending.

Temer took office last month when suspended President Dilma Rousseff stepped aside to face a Senate trial for breaking budget rules. She denies any wrongdoing.

He said on Twitter that the deal with states also meant that five credit lines from development bank BNDES will be extended for another 10 years. ($1 = 3.39 Brazilian reais)

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