Rebel Brazil states say have no cash to pay debts
Monday January 18, 12:40 pm Eastern Time
By Vanessa Viola
BELO HORIZONTE, Brazil, Jan 18 (Reuters) - Rebellious Brazilian states, huddling
on Monday to plot the next step in their fight against the federal government's financial
demands, said they were in no position to pay debt owed in the coming weeks to
Brasilia and demanded their debts be renegotiated.
The governor of the northeastern state of Alagoas, one of Brazil's poorest, said as he arrived in the central city of Belo
Horizonte that he was not about to follow the lead of Minas Gerais state and declare a unilateral moratorium.
''I don't have any money. I'm not declaring a moratorium. I just don't have any money,'' said Governor Ronaldo Lessa, a
member of the leftist Brazilian Socialist Party.
Lessa and opposition governors from five other cash-strapped states were attending talks with Minas Gerais Governor
Itamar Franco, a former president who in part helped bring about the collapse of Brazil's fixed exchange rate regime by
refusing to pay off debt owed to the federal government.
The amount of money - some $200 million -- was small but Franco's decision set off alarm bells among international
investors already concerned about Brazil's ability to slash its 8 percent of gross domestic product public sector deficit.
On Friday, Brazil bowed to overwhelming capital flows and let the currency, the real, float free. On Monday, the Central
Bank said it would carry on floating the real.
The Belo Horizonte meeting of opposition governors included in addition to Minas Gerais and Alagoas the states of Acre,
Rio Grande do Sul, Amapa, Mato Grosso do Sul and Rio de Janeiro.
Last week, 18 of Brazil's 27 states run by supporters of President Fernando Henrique Cardoso declared they would not
default.
The debt Alagoas has to pay to Brasilia in January amounts to some 31 million reais out of its monthly revenues of 80
million reais, nearly equivalent to its monthly payroll costs of 34 million reais, Lessa said.
Rio de Janeiro state governor Anthony Garotinho said he expected to be granted the same right that the federal
government was seeking to renegotiate the terms of a $41.5 billion bailout from the International Monetary Fund.
The federal government has denied that it is seeking to renegotiate the fiscal terms of its IMF package.
Garotinho told reporters he would insist on being able to renegotiate his state's debt with the government.
''We want to have the same criteria. They (the government) want to renegotiate with the IMF. Well, we want to
renegotiate with the government,'' he said on arriving in Belo Horizonte.
The Brazilian government has formal debt renegotiation agreements with 20 of the states and the accords represent an
important part of its five-year anti-inflation program now at risk from further devaluation.
Brasilia refinanced the states' liabilities at longer maturities, but set strict austerity conditions including fixed monthly
paybacks of around 15 percent of the states' revenue and state sell-offs.
The Workers Party (PT) governor of Mato Grosso do Sul, Jose Orcinio Miranda, defended the demands of the
opposition states to renegotiate their debt.
''We have to make the federal government understand our position and and discuss it like adults,'' Miranda said.
The governors of Rio Grande do Sul and Rio de Janeiro have turned to the courts for injunctions against the debt
payments with Brasilia they inherited on taking office this month.
Minas Gerais has also begun legal action in a bid to recover 11.7 million reais seized from state bank accounts by the
federal government in retaliation for its moratorium.
Miranda said legal action was the only alternative left to the states if the government refused to talk.
Veteran left-wing leader Leonel Brizola, head of the Democratic Labor Party (PDT), who was also attending the Belo
Horizonte meeting, said all the states should apply to the courts for injunctions against the debt payments.
Rio Grande do Sul Governor Olivio Dutra, also of the PT, said he and the other governors would seek a meeting with
Cardoso to discuss the finances of the states and a renegotiation of the 1997 refinancing terms.
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