Looks like our friend Itamar and his cronies are at it again.
Brazilian States Ask Federal Govt ToRenegotiate Debt
Dow Jones Newswires
RIO DE JANEIRO (AP)--Amid turmoil over Brazil's abrupt devaluation of its currency, opposition governors plan to unite to force the government to renegotiate their multi-billion dollar debts. Six governors are to meet Monday in Minas Gerais state, whose Gov.Itamar Franco triggered the latest market upheaval by suspending
payments on his state's 15 billion reais (BRR) ($1=BRR1.43) debt for 90 days.
The moratorium added to fears that the federal government doesn't have the political support to pass severe budget-cutting reforms, a condition for release of a $41.5 billion aid package from international lenders.
The market turmoil led the government to devalue the real by about 8% last week. Two days later, it removed all restrictions on dollar trading and promised to set new rules Monday. The finance ministers of the six states met Friday and said local governments could not maintain essential public services and also pay their debts.
Brazil's 26 states and the Federal District of Brasilia now owe the federal government some $78 billion, or 100.6 billion reals. The debts have risen steadily due to high payrolls and interest rates, inefficient state companies, pork-barrel projects and corruption.
The ministers suggested limiting debt payments to 5% of state revenue, compared to 12%-15% today. So far, the government has refused to negotiate. On Friday, President Fernando Henrique Cardoso indirectly criticized Franco, a former Brazilian president. "Declarations and irresponsible actions over a moratorium on state debt caused many Brazilians as well as foreigners to take their assets out of Brazil," Cardoso said in a nationally televised speech.
Other governors say they don't intend to default on loans but simply can't afford to pay. Rio de Janeiro state finance minister Carlos Sasse said it's impossible to meet payments on its $15.3 billion debt. In Rio Grande de Sul, the state Supreme Court agreed to let Gov. Olivio Dutra deposit debt payments in escrow.
The federal government asked the nation's highest court to overturn the ruling. Many analysts think Cardoso has little choice but to hammer out an agreement with governors. "The president will have to renegotiate," said Claudio Goncalves Couto, a political science professor at Sao Paulo's Catholic University. "Besides, the
series of events unleashed by Itamar Franco has given the states more
maneuvering room."
Franco, in his first public appearance since declaring the moratorium, attacked Cardoso on Friday for "handing over our industries to foreigners" and implementing policies that "bring unhappiness, recession and unemployment." |
