(Adds comments from Meirelles)
By Marcela Ayres and Cesar Raizer
BRASILIA Dec 14 Brazil's government proposed a
"fiscal recovery" bill on Wednesday that would allow state
governments to suspend debt payments to the federal government
in exchange for limiting spending and pursuing privatizations.
Finance Minister Henrique Meirelles compared the proposal
being sent to Congress to the bankruptcy protection available to
companies, with a series of conditions and potential penalties
tied to debt relief.
The legislation would formalize largely ad hoc negotiations
that have sprung up between the federal government and
cash-strapped states, which have watered down austerity
requirements attached to recent bailouts amid a severe
To enter the proposed recovery process, states would need to
show that their net revenues are below total outstanding debt,
that the sum of all their costs exceed revenues and that
liabilities surpass available cash, according to a finance
They would also be required to sell state-owned companies or
other assets chosen by the federal government to raise cash for
paying down debts.
States under the regime, which could last up to three years,
would be barred from increasing payroll and obligatory spending
or pursuing measures that reduce revenues. They would be allowed
to suspend debt payments to the federal government and to
renegotiate loans with financial institutions.
Meirelles told journalists the proposed legislation would
have no impact on the federal government's primary balance, a
fiscal gauge of revenue minus spending before interest payments,
which has plummeted in the current crisis.
Brazil's two-year recession has taken its toll on state
governments, with several now struggling to pay hefty pension
and payroll bills. Rio de Janeiro state, which hosted the
Olympics this year, is facing perhaps the most acute crisis.
President Michel Temer has already offered financial relief
for struggling states in return for austerity measures, which
have been relaxed in subsequent negotiations.
Many states have already turned to selling state assets to
shore up their finances. Rio's water and sewage utility Cia
Estadual de Águas e Esgotos SA has long been seen as a potential
target for a full or partial sale.
(Reporting by Marcela Ayres and Cesar Raizer; Writing by Bruno
Federowski; Editing by Tom Brown)