{"id":89960,"date":"2024-07-10T16:06:59","date_gmt":"2024-07-10T19:06:59","guid":{"rendered":"https:\/\/murray.adv.br\/?p=89960"},"modified":"2024-07-10T16:07:00","modified_gmt":"2024-07-10T19:07:00","slug":"bill-favors-states-indebted-to-federal-government","status":"publish","type":"post","link":"https:\/\/murray.adv.br\/en\/bill-favors-states-indebted-to-federal-government\/","title":{"rendered":"Bill favors states indebted to federal government"},"content":{"rendered":"\n<h6 class=\"wp-block-heading has-text-align-center\"><em><strong>Senate President Pacheco\u2019s proposal alters indexation, freezes payments, and sets debt at R$700bn to be repaid over a span of 30 years<\/strong><\/em><\/h6>\n\n\n\n<p><\/p>\n\n\n\n<p>10\/07\/2024 <\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\" \/>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/s2-valorinternational.glbimg.com\/RBOMCA2AAaBUgTMm8QUOV6-OrXU=\/0x0:2719x1813\/984x0\/smart\/filters:strip_icc()\/i.s3.glbimg.com\/v1\/AUTH_37554604729d4b2f9f3eb9ad8a691345\/internal_photos\/bs\/2024\/t\/5\/rgUAv3Q2yGZXCvgXGjmg\/53845717661-36c6a84c3d-o.jpg\" alt=\"Rodrigo Pacheco \u2014 Foto: Geraldo Magela\/Ag\u00eancia Senado\" style=\"width:548px;height:auto\" \/><\/figure>\n<\/div>\n\n\n<p class=\"has-text-align-center\"><em>Rodrigo Pacheco \u2014 Foto: Geraldo Magela\/Ag\u00eancia Senado<\/em><\/p>\n\n\n\n<p>Brazilian Senate President&nbsp;<strong>Rodrigo Pacheco<\/strong>&nbsp;introduced on Tuesday (9) a supplementary bill proposing new guidelines for state debt repayment to the federal government. This legislative change, initiated by the Senate leader, proposes that the total principal of around R$700 billion be fixed and repaid over a span of 30 years. The largest portions of this debt are attributed to the states of Minas Gerais, S\u00e3o Paulo, Rio de Janeiro, and Rio Grande do Sul.<\/p>\n\n\n\n<p>Under the new bill, states would have the option to negotiate the transfer of assets to reduce their&nbsp;<strong>federal debts<\/strong>. The interest adjustment index could shift from the current rate of IPCA plus 4% to just the IPCA (Brazil\u2019s benchmark inflation index). Moreover, states could receive a reduction of up to two percentage points on the interest rate by transferring assets amounting to over 20% of the total debt value.<\/p>\n\n\n\n<p>If the transferred asset value falls between 10% and 20% of the total debt, states can secure a deduction of one percentage point. Additionally, the bill includes provisions for further reductions: one percentage point if the equivalent funds are invested within the state in education, infrastructure, or public safety, and another percentage point is allocated to the National Equalization Fund, which benefits all entities, including those without debts.<\/p>\n\n\n\n<p>Originally, the&nbsp;<strong>Ministry of Finance<\/strong>&nbsp;had proposed that reductions in debt interest be contingent upon increasing enrollments in technical secondary education. However, Senator Pacheco\u2019s bill stipulates that investments must be flexible but are conditional upon states achieving annual performance goals related to technical secondary education. Should a state fail to meet these benchmarks, 60% of the funds must mandatorily be directed towards developing vocational education.<\/p>\n\n\n\n<p>Sources from the Ministry of Finance have expressed reservations about the Senate\u2019s proposal, describing it as \u201cfar from ideal\u201d and markedly different from the original plan proposed by the ministry. Preliminary internal evaluations suggest that the proposal could harm the federal budget by disrupting financial flows and may not even benefit states like Minas Gerais and Rio de Janeiro, which are actively seeking to renegotiate their debts.<\/p>\n\n\n\n<p>When asked about the bill, Finance Minister&nbsp;<strong>Fernando Haddad<\/strong>&nbsp;acknowledged that he had not yet reviewed the text but emphasized the importance of ensuring it does not adversely affect federal accounts.<\/p>\n\n\n\n<p>\u201cWe are aiming for zero impact on the federal government\u2019s primary accounts. It\u2019s crucial to maintain this stance, as any deviation could lead to significant issues with the national accounts, and we cannot afford errors in this area,\u201d the minister told reporters.<\/p>\n\n\n\n<p>Senate President Pacheco appointed Senator Davi Alcolumbre, the head of the Constitution and Justice Commission (CCJ) and a close ally, as the rapporteur. Mr. Pacheco aims for the proposal to be voted on by July 18th, just before the informal recess of the Brazilian Congress begins.<\/p>\n\n\n\n<p>Despite the urgency, the Senate president has called for \u201ccollaboration\u201d from his colleagues, acknowledging the lack of a unified stance among the Ministry of Finance and governors.<\/p>\n\n\n\n<p>\u201cWe have a sustainable program, a project that has been thoroughly developed in collaboration with the Ministry of Finance and the governors. Clearly, not all points have been settled with the Ministry of Finance or the governors. Now is the moment for everyone to come to the table and work out what can be improved,\u201d he stated.<\/p>\n\n\n\n<p>According to government insiders, Senator Pacheco might be broadening benefits for states as a strategic move to counteract criticism from Minas Gerais Governor&nbsp;<strong>Romeu Zema<\/strong>, as both are locked in a political rivalry.<\/p>\n\n\n\n<p>Senator Pacheco noted that if the indebted states join the Program for the Full Payment of State Debts (ProPag) and reduce the interest rate to 4%, their combined debts would decrease from R$700 billion to R$672 billion. Despite the federal government foregoing R$28 billion annually under this plan, Mr. Pacheco argues that the arrangement is ultimately beneficial for both parties.<\/p>\n\n\n\n<p>\u201cThe federal government\u2019s aim is to collect, and the state\u2019s aim is to pay, yet the debt gap widens. We are offering a way to balance this out. This is more than a financial transaction\u2014it\u2019s about strengthening the federal relationship. It involves investing in the states, allowing the federal budget to effectively collect the principal,\u201d he contended.<\/p>\n\n\n\n<p>The proposed bill includes an option for states to transfer \u201cnet and certain credits\u201d with the private sector to the federal government. For instance, this could allow the Minas Gerais government to apply what remains of&nbsp;<strong>Vale\u2019s compensation payments for the Brumadinho dam disaster<\/strong>&nbsp;towards reducing its debt burden. Federal government officials, however, are cautious about this clause, expressing concerns about the inclusion of potentially unrecoverable debts.<\/p>\n\n\n\n<p>As the bill was being drafted, governors and lawmakers pushed to incorporate options for negotiating discounts on both interest and principal amounts of the state debts. Senator Pacheco pointed out that such discounts would contravene the Fiscal Responsibility Law (LRF).<\/p>\n\n\n\n<p>Efforts by governors to utilize funds from the States Compensation Fund, established during tax reform, to alleviate debt were also proposed but ultimately rejected.<\/p>\n\n\n\n<p><strong>Felipe Salto<\/strong>, former secretary of Finance and Planning for S\u00e3o Paulo and now chief economist at&nbsp;<strong>Warren Investimentos<\/strong>, expresses deep concerns about the Senate\u2019s proposal. \u201cIn practice, real interest rates could effectively drop to zero. This poses a significant obstacle to achieving fiscal balance, as it could diminish vital financial revenue streams while simultaneously encouraging increased spending due to the created fiscal space,\u201d he explained.<\/p>\n\n\n\n<p>\u201cAs if that were not enough, they are still creating an equalization fund, for which a percentage point from the reduced interest for states that participate will be directed into this fund, which will then be distributed among all states. Essentially, this is throwing money out the window,\u201d he remarked.<\/p>\n\n\n\n<p><strong>Marcelo Fonseca<\/strong>, chief economist at\u00a0<strong>Reag Investimentos<\/strong>, acknowledges the potential benefits of the federal government acting as a \u201clender of last resort\u201d due to its greater borrowing capacity compared to the states. However, he notes that, upon \u201cinitial review,\u201d Senator Pacheco\u2019s proposal appears \u201cfraught with issues,\u201d\u2014some of which are recurrent\u2014notably, the lack of \u201csubstantial conditions that allow adjustments and reforms,\u201d which are crucial for states to improve their fiscal health.<\/p>\n\n\n\n<p>Source: Valor International<\/p>\n\n\n\n<figure class=\"wp-block-embed\"><div class=\"wp-block-embed__wrapper\">\nhttps:\/\/valorinternational.globo.com\/\n<\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>Senate President Pacheco\u2019s proposal alters indexation, freezes payments, and sets debt at R$700bn to be repaid over a span of 30 years 10\/07\/2024 Rodrigo Pacheco \u2014 Foto: Geraldo Magela\/Ag\u00eancia Senado Brazilian Senate President&nbsp;Rodrigo Pacheco&nbsp;introduced on Tuesday (9) a supplementary bill proposing new guidelines for state debt repayment to the federal government. This legislative change, initiated [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8106],"tags":[25261],"class_list":["post-89960","post","type-post","status-publish","format-standard","hentry","category-murray-news","tag-bill-favors-states-indebted-to-federal-government"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.0 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Bill favors states indebted to federal government - Murray Advogados<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/murray.adv.br\/en\/bill-favors-states-indebted-to-federal-government\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bill favors states indebted to federal government - Murray Advogados\" \/>\n<meta property=\"og:description\" content=\"Senate President Pacheco\u2019s proposal alters indexation, freezes payments, and sets debt at R$700bn to be repaid over a span of 30 years 10\/07\/2024 Rodrigo Pacheco \u2014 Foto: Geraldo Magela\/Ag\u00eancia Senado Brazilian Senate President&nbsp;Rodrigo Pacheco&nbsp;introduced on Tuesday (9) a supplementary bill proposing new guidelines for state debt repayment to the federal government. 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