Brazil Senate votes to cut state, civic debt, easing budget rigor

miércoles 5 de noviembre de 2014 18:27 GYT

By Alonso Soto

BRASILIA Nov 5 (Reuters) - The Brazilian Senate approved a bill on Wednesday that lowers the debt burden of states and municipalities, opening the way for regional governments to spend more at a time of growing concern about the country's fiscal health.

The bill, which was supported by government lawmakers as well as the opposition, will add pressure on newly re-elected President Dilma Rousseff, who has promised to rein in public spending, slow inflation and limit the country's rising debt burden to regain the trust of investors.

The bill changes the benchmark index used to calculate the interest that regional governments pay on debt to the federal government. It also allows the federal government to readjust state and municipal debt back to the date each state or municipality signed a debt-renegotiation deal with the central government.

Going forward, the new terms allow state and municipal debts to be adjusted by the country's benchmark consumer-price index, known as the IPCA, or by the central bank's Selic benchmark overnight rate, whichever is lower. Previously the debts were adjusted by the country's IGP-DI index, a measure of changes in both wholesale and consumer prices.

The retroactive adjustment of debt can only be made using the Selic index.

"The change in the index will generate some financial relief for the states and they will use it to spend more, which will mean a lower primary surplus and a more expansionist fiscal policy," Alberto Ramos, senior economist with Goldman Sachs in New York, said on Wednesday before the vote.

The finance ministry has declined to answer repeated requests from Reuters for an estimate on the potential impact of the bills on spending and total government debt.

The federal government may have to forgo about 187 billion reais ($74.4 billion), or more than 1.5 percent of gross domestic product, in future debt payments through 2040, according to Treasury data provided to the country's federal-auditing council known as TCU.   Continuación...