BRASILIA Jan 13 The cash-strapped Brazilian
state of Rio de Janeiro is considering offering early retirement
to thousands of employees as part of a bailout deal with the
federal government, an official close to the negotiations said
In a change to the original plan, the federal government is
ready to give over three years of temporary debt relief to Rio
in exchange for austerity measures to cut payroll spending,
privatize its water utility and raise pension contributions.
The original plan was to last three years with the temporary
suspension of debt payments, giving about 23 billion reais ($7.5
billion) in savings to Rio, which wracked up debt on
infrastructure linked to this year's Olympics and 2014 World
"The situation in Rio is critical," said the government
official who asked not to be named because he was not authorized
to speak on the negotiations. "It will take some time to resolve
that. Maybe more than three years."
Rio is in one of its worst crises ever as Brazil's recession
enters a third year and amid a drop in oil royalty income and a
surge in payroll spending. Several other states are also deeply
The state, a favorite with tourists, has delayed payments to
police, doctors and teachers, sparking violent street protests.
Crime has mounted and dilapidated hospitals have been running
out of supplies.
President Michel Temer is racing to sign Rio's rescue plan
next week, threading a fine line to give the state relief but
without offering too many concessions that could be interpreted
by markets as a relaxation of his austerity drive.
As part of the deal, Rio could offer a voluntary dismissal
plan to civil servants to cut its ballooning payroll bills. Cuts
in salaries and hours worked is also being considered.
The Rio governor's office did not immediately reply to a
request for comment.
Rio could erase its expected budget deficit of nearly 20
billion reais this year with the combination of federal debt
relief, spending cuts, measures to increase revenue and a fresh
loan from a consortium of banks, the official said.
The country's largest lender, state-run Banco do Brasil, is
interested in joining the consortium, which could include
private Brazilian banks as well as international financial
institutions, the official said.
The fresh loan would be backed by future proceeds from the
privatization of Rio's water utility Cia Estadual de Águas e
Esgotos SA, known as Cedae, which some market analysts price at
between 3 billion and 4 billion reais.
Rio could also raise fresh cash by securitizing oil-royalty
receivables via its state pension fund RioPrevidencia. But that
option is seen as unlikely as the state has already compromised
part of its oil revenues in a similar operation, the official
(Reporting by Alonso Soto; Editing by Brad Brooks and