Sunday January 10, 8:34 am Eastern Time
WOW.....prisoners will be fed before creditors....that's a new twist.
Brazil's Minas Gerais warns may not pay Eurobonds
By Vanessa Viola
BELO HORIZONTE, Brazil, Jan 9 (Reuters) - The rogue governor of Brazil's Minas Gerais state, Itamar Franco, warned on
Saturday he would only pay upcoming Eurobond obligations if the region's local financial needs could first be met.
''If we have money after paying for state workers' salaries and paying for our prisoners' food, then no problem,'' Franco said.
Minas Gerais rocked global financial markets last week by suspending payments on $15 billion in debt to the federal government in open defiance of the president
and his fiscal austerity drive.
Franco has further worried international investors by refusing to clarify his position on the state's outstanding Eurobonds, $108 million of which are set to mature next
month.
''Eurobonds, I will begin to study that on Monday,'' Franco told reporters assembled at the governor's mansion.
He added that Brazil's Finance Minister Pedro Malan was in no position to guarantee payment on the state's Eurobonds, as he did last week by pledging to seize
$78.3 million in Minas Gerais funds held in a federal bank account.
''This is a deal between Minas and a private bank,'' Franco said. ''So, there is no room here, constitutionally, for interference by the Finance Ministry.''
The political feud comes at delicate moment for President Fernando Henrique Cardoso, who is struggling to maintain enough momentum in Congress to pass painful
budget cuts needed to qualify Brazil for a $41.5 billion international rescue package.
Cardoso issued a stern warning to Minas Gerais on Friday in an attempt to shore up flagging investor confidence in the world's eight-largest economy, which lost $1
billion in a hemorrhage of dollar outflows last week.
''I will not allow the law to be ignored. The most senior authority in this country is the president,'' Cardoso said. But Franco, who was president between
1992-1994, refused to comment on Cardoso's threats and made a joke about the damage his debt moratorium inflicted on Brazilian shares and emerging markets
across the globe.
''I am very worried because my stocks in Tokyo fell...My stocks in Hong Kong fell and in New York they fell,'' Franco said.
''Since I have so many stocks in Hong Kong, Tokyo, and New York...I am therefore worried.''
Franco appointed Cardoso as his finance minister when he was president, but has become increasingly critical of his former aid. He accused Cardoso of neglecting
Brazil's social ills and taking all of the credit for a popular anti-inflation plan announced by the finance ministry during Franco's term.
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