By Richard Mann, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The federal government will send a bill to Congress next week to assist states in financial difficulties.

It is intended to aid states that are regarded as poor payers. The federal government is willing to act as guarantor for loans that governors may obtain from banks or international institutions.

Should the states fail to comply, the federal government will settle repayments, alike any other guarantor.

As a result, the government expects that states will be able to borrow up to R$40 (US$10) billion in four years. States facing cash flow difficulties will be eligible to subscribe to the plan.

Currently, there are twelve in this position: Bahia, Sergipe, Pernambuco, Rio Grande do Norte, Piauí, Maranhão, Goiás, Mato Grosso, Mato Grosso do Sul, Tocantins, Roraima, and Santa Catarina, in addition to the Federal District.

States in worse shape, such as Rio de Janeiro, Rio Grande do Sul, and Minas Gerais are not included. The adjustment required for these states is such that a fiscal consolidation program is already in place.

As in other aid plans, only states that commit to a strict fiscal adjustment will be entitled to the Union’s guarantee.

National Treasury Secretary, Mansueto Almeida, said that the program will allow states to obtain more credit to pay employees, suppliers and other expenses, as long as they pledge to adopt adjustment measures such as control over expenses with personnel and pensioners and to increase revenue collection.

The last time the federal government aided the states was in 2016. It renegotiated debts, reduced installments, and extended repayment terms.

In return, indebted states had to cut personnel costs and maintain the public machine. Nineteen states subscribed to the plan at the time, although nine states had already cautioned that they could not comply with the agreement.

Common reasons for this are increased salaries and retirement expenses. Experts in public finance, therefore, caution that this measure will help states, but is not a definitive solution.

 

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