Economic news

Brazil’s Senate proposes significant reduction of state debt charges to federal government

2024.07.09 14:36

BRASILIA (Reuters) – Brazil Senate President Rodrigo Pacheco presented a bill on Tuesday that significantly reduces the charges on state debt payments to the federal government.

If the proposal gets congressional approval, the interest charges will correspond only to inflation, provided certain conditions are met, and the payments will be made over up to 30 years.

State debts amount to over 700 billion reais ($129.17 billion) and are adjusted by inflation plus 4% per year.

Speaking to journalists, Pacheco said the Finance Ministry agrees these 4 percentage points should be redirected to purposes other than the federal government’s coffers.

However, he noted that the bill contained points that did not align with the views of President Luiz Inacio Lula da Silva’s economic team.

The Finance Ministry did not immediately respond to a Reuters for comment.

Under Pacheco’s proposal, two percentage points of the debt charges above inflation could be forgiven if the state delivers assets to the federal government corresponding to more than 20% of its debt. If the assets represent between 10% and 20% of the debt, the reduction would be 1 percentage point.

These assets could include receivables, judicial credits, and stakes in companies.

Additionally, Pacheco said 1 point could be redirected to investments in the states, including education, public security, disaster prevention and infrastructure. The remaining 1 point could be transferred to an equalization fund to benefit all states.

In March, the Finance Ministry proposed reducing the burden of states’ debt to the federal government on the condition that the saved resources be allocated solely to technical high school education.

© Reuters. FILE PHOTO: Brazil's Senate President Rodrigo Pacheco attends the inauguration ceremony of Brazil's new Justice Minister Ricardo Lewandowski at Planalto Palace in Brasilia, Brazil, February 1, 2024. REUTERS/Adriano Machado/File Photo

Earlier in July, Finance Minister Fernando Haddad said that the government agreed to a program for re-negotiating these debts, including reducing charges, creating an equalization fund, and unspecified obligations from the states, which he predicted would be voted on by July.

($1 = 5.4191 reais)



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