Federal Government to Provide Rio with R$6.5 Billion in Loans

By Jay Forte, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Yesterday (January 26th) the state of Rio de Janeiro signed a term of commitment to receive financial relief from the federal government. To remedy a deficit that should reach R$26,132 billion in 2017, the state will receive the federal guarantee to take out two loans of approximately R$6.5 billion.

Under the agreement, the governor of Rio de Janeiro, Luiz Fernando (Bigfoot) Pezão, pledged to raise the expected revenues for this year by R$1.2 billion. In order for the fiscal recovery to take effect, the state also commits itself to cut expenses in the order of R$9 billion.

According to government news source, the agreement is based on a guarantee for the privatization of the State Water and Sewage Company of Rio de Janeiro (CEDAE) and an anticipation of revenues from oil royalties.

The governor and Finance Minister Henrique Meirelles announced the signing of the compromise agreement after meeting with President Michel Temer at the Planalto Palace. Also at the meeting was the president of the Legislative Assembly of Rio de Janeiro (ALERJ), Jorge Picciani.

“We agree with the structuring of the operation that will allow CEDAE to use it as a guarantee, after approval of the privatization project by ALERJ. Privatization resources [will be important] for the Union to grant the endorsement for a loan operation in a federal bank. Guarantee of the Union and counter-guarantee of CEDAE,” said Minister Meirelles.

The agreement is initially valid for three years until 2019 and can be renewed if necessary. With the obligation to fulfill a series of counterparts to cut expenses and increase revenues, the state government will first have to approve the measures that are already processed in ALERJ for them to be executed.