August 30, 2017 / 10:13 PM / a year ago

UPDATE 1-Brazil will ask BNDES for $32 bln to bolster revenues

(New throughout, adds Finance Ministry confirmation)

SAO PAULO, Aug 30 (Reuters) - Brazil will request that state development bank BNDES transfer about 100 billion reais ($31.6 billion) to the National Treasury so the federal government can avoid breaking a budget law, the Finance Ministry said on Wednesday.

The move would follow a similar 100 billion real transfer late last year, one of several measures taken by President Michel Temer’s administration to curb a growing budget deficit.

The request was first reported by newspaper O Estado de S. Paulo on Wednesday. The Finance Ministry press office said the exact amount to be transferred was still under discussion.

The measure is needed to avoid breaking a constitutional rule forbidding the government from issuing more debt than the amount of capital spending planned for the year, a prospect that seems increasingly likely in 2018, Estado said.

BNDES is reluctant to agree, according to the report, saying the funds will be needed as demand for long-term loans accelerates during an economic recovery. The funds will be included in a budget proposal to be sent to Congress on Thursday, the newspaper said.

BNDES workers’ association said such transfers to the National Treasury are illegal and weaken the bank.

Media representatives for BNDES were not immediately available to comment.

Reuters had reported on Aug. 23 that BNDES was in talks with government officials over the return of about 80 billion reais to the Treasury.

Since 2009, Brazil extended several long-term loans to BNDES to help fund heavily subsidized credit, which has weighed on taxpayers.

The government intends to phase out those subsidies in the coming years by setting a market-based benchmark rate for the development bank. The bill is expected to be voted in the Senate in the coming days.

Brazil is grappling with lower-than-expected tax revenues as it recovers from its deepest recession on record and is now working to approve easier fiscal targets in Congress and avoid crippling spending cuts. ($1 = 3.1650 Brazilian reais) (Reporting by Bruno Federowski; editing by Paul Simao and David Gregorio)

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