Group of 17 Brazil State Governors Meet To Support Cardoso
By ADRIANA ARAI
Dow Jones Newswires
SAO PAULO -- Seventeen of Brazil's 27 state governors gathered in remote northern Maranhao state Tuesday in a show of support for President Fernando Henrique Cardoso, who is feeling renewed pressure from some quarters to renegotiate state debts.
The meeting, convened by Maranhao Governor Roseana Sarney of the government-allied Liberal Front Party (PFL), was a direct response to last Wednesday's declaration of a 90-day moratorium on debt payments to the federal government by Minas Gerais Governor Itamar Franco.
And although details from Tuesday's meeting remained sketchy at the outset, it appeared to indicate early battle lines were being drawn on the state level between Franco and his opponents.
"We have to change the focus of the debate from paying or not paying, renegotiating or not renegotiating," Sarney told reporters as the meeting got underway, according to the Brazilian news agency Estado.
Sarney also said that those states with debts "have to pay," Estado reported.
The meeting comes as Franco - who said his state government had "absolutely no funds" to meet 15 billion reals (BRR) ($1=BRR1.20) in federal debt obligations - prepares to meet next Monday with some of the remaining governors who may push for a formal debt restructuring.
Analysts said that the gathering in Maranhao may improve investor perception of Brazil as it stands a good chance of squashing what local media have dubbed the "Itamar effect."
"Government-allied governors (in Maranhao) want to show that they support Cardoso and that they have an alternative to the moratorium," said Valeriano Costa, a political scientist at the University of Campinas.
After the meeting, the 17 state governors issued a communique criticizing Franco's decision to declare a moratorium, Estado reported.
"In a moment when Brazil is making a great effort to withstand speculative attacks, attitudes that can cause instability and hurt the country's credibility are inapropriate, and have serious domestic effects," the statement said in a veiled reference to the Minas Gerais moratorium.
The moratorium has been driving local stocks sharply down since last Thursday, with the key Sao Paulo Stock Exchange Bovespa Index falling 7.6% Tuesday to a four-month low.
Traders said that investors fear the moratorium could hamper Brazil's ability to push through a much-needed fiscal adjustment program being addressed in a special session of Congress - a view shared by the governors gathered in Maranhao.
"The failure of the fiscal plan would jeopardize states that, after a lot of effort, balanced their accounts or that are implementing their (own) fiscal adjustment programs," the governors said in the communique.
They reiterated their support for Cardoso at adopting the necessary measures to strengthen the real, and said they wanted him to lead the "process of understanding."
The 17 governors also urged Congress to pass the reforms as soon as possible, which Cardoso has been saying are a prerequisite for lower interest rates.
Some of the governors gathered in Maranhao are reportedly in worse financial shape than Minas Gerais. Analysts said their backing of Cardoso underlines their disapproval of Franco's course of action - but doesn't mean necessarily that they're against having their debts restructured once more.
Between early 1996 and mid-1998, the federal government renegotiated debts with 24 of the 27 states, assuming BRR83 billion in obligations in return for repayment at highly subsidized rates over 30 years.
The federal government at the time said the accord was final and binding - a position it has maintained in the wake of Minas Gerais' moratorium announcement.
Along with two other state debt rollovers carried out in 1989 and 1993, total state debt assumed by the federal government amounts to just over BRR100 billion (at current prices).
Minas Gerais' Franco is slated to meet Jan. 18 in his state's capital of Belo Horizonte with other governors that support his decision on the moratorium, according to local press reports.
Franco's office has not returned calls seeking comment in recent days, and wasn't immediately available Tuesday for comment on the Maranhao meeting.
At the end of Tuesday's full-page statement, signatory governors took the opportunity to propose the creation of a National Governors' Conference, so that they "participate effectively in economic and social policy-making."
Political analysts say that's how more developed countries like Canada and Germany solved similar problems concerning their federation structure, seen by many as the "root" of the dispute between Brazilian states and the federal government.
"The opposition is exploiting the moratorium's political nature, but this conflict is a great opportunity for states to claim a revision of the federation's structure," said the University of Campinas' Costa.
Tuesday's meeting wasn't only a show of solidarity with Cardoso, but also a stage for governors to make their own demands on a wide range of issues, according to analysts.
"They'll use the opportunity to not only give full support to economic stability - by declaring themselves against any moratorium - but also to demand the federal government place more emphasis on growth, development, and lower interest rates," said Brasilia-based political consultant Carlos Lopes as the Maranhao meeting got underway.
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