Anti-Coronavirus Bill Allows States to Incur More Debt

RIO DE JANEIRO, BRAZIL – The emergency rescue bill for the states under discussion in the Chamber of Deputies allows for a ten percent increase in their debt, between R$55 billion (US$11 billion) and R$65 billion in new loans, in addition to the R$565 billion at the end of last year.

The calculations were carried out by the Independent Fiscal Institution (IFI) of the Senate. In addition to suspending the payment of debt installments to the Federal Government and banks, the bill allows governors to borrow up to a limit of eight percent of their revenues.

The vote on the bill was interrupted on Wednesday after a war over figures about its impact, which placed the Chamber president Rodrigo Maia and the federal government on opposite sides.

The bill was created as a short-term alternative to the so-called Mansueto Plan, which would establish conditions for states and municipalities in critical fiscal situations to incur greater debt.

Named in reference to the Treasury Secretary, Mansueto Almeida, the plan had long-term features. In order to serve governors in the midst of the coronavirus pandemic, deputies decided to address the current bill.

Economists alerted to the harmful impact of the bill on public accounts past the end of the public disaster caused by Covid-19, extending beyond 2020.

During the vote, information began to flow that an article included in the bill would directly benefit Rio de Janeiro – Maia’s State – further deteriorating the atmosphere for voting.

The articulator of the project, the Chamber president, who intended to complete the vote on the bill on Wednesday, decided to suspend the session. “The matter is still very controversial, many people wanting to include issues of municipalities, others wanting to take them out,” admitted Maia just before interrupting the session.

After reading the text, the economic team estimated that the impact of the project would reach R$159.7 billion (in the afternoon in the previous version, the project was costing the public coffers R$190 billion).

The bill’s rapporteur, Deputy Pedro Paulo said that it was only R$50 billion.

Controversy

Maia also challenged the government and economists Marcos Lisboa and Marcos Mendes’ figures, who throughout the day published an article in the Brazil Journal, estimating the impact to be R$150 billion. According to Maia, the fiscal impact of the new bill is R$35 billion, plus a loan amount of approximately R$50 billion.

According to Pedro Paulo, the impact estimate of R$180 billion by the economic team includes measures already implemented by the government for the municipalities and the suspension of debt payments during the calamity. “They are different accounts,” he said.

For Felipe Salto, IFI’s executive director, the new text created as an alternative to the Mansueto Plan is very poor: “The cost will be borne by the federal government after the storm, and the fiscal problem will be greater than before the crisis,” Salto said.

He cautioned that the bill allows the contracting of new debt by states and municipalities up to eight percent of Net Current Revenue (NCR), regardless of any condition or limit. “Now it’s time for decentralized spending financed with federal debt. What we need now is not to take on more costs and risks for the future, a legacy that will be very difficult to manage,” said the director of the IFI, whose mission is to assess the impact of the measures under consideration in Congress.

The increase in the limits of indebtedness of states in the years following the 2008 financial crisis led to a situation of shortage and excess of state debts. Many state resources were used to generate permanent spending. Even before the coronavirus crisis, many governors were short of money to cover wages.

Pedro Paulo vehemently denied that he included anything “fishy” in his report to help his state, Rio de Janeiro, which is in a Fiscal Rehabilitation Regime (RRF), the federal government’s rescue program for states.

Source: Exame