Lula signs off on debt relief to state affected by floods

Finance Minister Fernando Haddad on Monday announced a bill that would authorize the federal government to suspend debt payments from Rio Grande do Sul, Brazil’s southernmost state, for three years. The state has been ravaged by extreme floods; damages so far have been estimated at BRL 8.4 billion (1.6 billion) per the National Confederation of Municipalities. […]

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Finance Minister Fernando Haddad on Monday announced a bill that would authorize the federal government to suspend debt payments from Rio Grande do Sul, Brazil’s southernmost state, for three years. The state has been ravaged by extreme floods; damages so far have been estimated at BRL 8.4 billion (1.6 billion) per the National Confederation of Municipalities.

The bill’s language refers to states affected by “extreme climate events” and under a state of public calamity recognized by Congress. 

During a teleconference meeting with President Luiz Inácio Lula da Silva broadcast on YouTube, Governor Eduardo Leite of Rio Grande do Sul said his state was already struggling with finances even before the current climate crisis. By late 2023, the state owed BRL 92.8 billion (USD 18 billion) to the federal government. 

Our latest Brazil Weekly newsletter showed how bad the state’s accounts are. A study by Firjan, a federation of Rio de Janeiro industries, found that 23 of Brazil’s 27 states are set to end the year in the red. Rio Grande do Sul has the fifth-highest expected deficit at BRL 3.11 billion.

Firjan flagged a scenario of “financial unsustainability” in 26 of 27 states, where expenses have grown far outpacing revenue. Except for Espírito Santo, in the Southeast, all Brazilian states spend more than half their money on debt payments and payroll. 

In the case of Rio Grande do Sul, these expenses account for 70 percent of spending, the second-worst in the entire country.

Mr. Leite had requested to postpone payments of the state’s debt to the federal government last week. He has also asked for a Marshall Plan-like aid package to lift the state out of destruction in the wake of the floods.

The Finance Minister said that, as soon as the bill is approved by Congress, it will free up BRL 11 billion (USD 2.1 billion) over the next three years in the state government’s budget. The federal government will also give up on receiving an additional BRL 12 billion in interest rates during this period. 

Mr. Haddad added that the federal government remains “at the negotiation table” for additional instruments to help Rio Grande do Sul.

Last week, Mr. Haddad announced a BRL 50.9 billion (USD 9.8 billion) package of measures to address the floods in the state of Rio Grande do Sul.

President Lula will announce additional measures during a trip to Rio Grande do Sul on Wednesday. “The last announcement will only be made when we are celebrating the recovery of the state,” he said.

Senate President Rodrigo Pacheco and House Speaker Arthur Lira also showed up at the meeting, a sign that they will speed up the bill’s approval in Congress.

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