The indebtedness of the Brazilian states
has reached crisis proportions. Total debt now exceeds $100
billion, and states are not servicing roughly one-half of
this.... Mostrar mais +
Since 1993, the growth of debt has accelerated. The
federal government now holds most of the states'
contractual debt, and finances it through federal bonds, and
deposits at federal banks. Unless the growth of the debt is
halted, the federal government will be forced to finance it
by reducing its own spending, raising taxes, or resorting to
inflationary financing, threatening the Plano Real. The way
in which the state debt problem manifests itself differs
from state to state. Some states have current debt service
obligations which they cannot meet or finance, and have a
major liquidity crisis on their hands. Others have
rescheduled their obligations with the federal government,
but will confront increases when grace periods expire this
year. Still others are faced with large short term
obligations in the form of arrears. In each of these
instances, expenditures other than debt service are under
enormous strain. The state debt problem is today too large
for the old type of remedy: negotiations with the federal
government. A federal bail-out would undermine the fiscal
discipline that is the cornerstone of the Plano Real.
Besides not being feasible, it would also not be desirable.
States must be held accountable for public expenditures and
financial management. Instead, this report recommends a
three step approach. First, a package of measures is needed
(involving both federal and selected state governments) to
slow the current explosive growth of state debt. Second,
states should adopt reform and modernization programs, led
by determined efforts at the federal level to remove
constraints (on personnel management, for example) that
impede states' ability to manage their affairs. Third,
the federal government must improve its ability to assess
state creditworthiness, until such time as private long term
financing is available to states. Mostrar menos -
