Brazil Announces Recovery Agreement for Rio de Janeiro

By Jay Forte, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Finance Minister Henrique Meirelles announced today that the federal government will make an agreement with the government of Rio de Janeiro for the state’s fiscal recovery. Without detailing the specifics of the plan, Meirelles said the full measure should be released next week.

“The agreement is viable and we conclude that, yes, we have all the conditions to close the agreement. That’s the big news,” Meireles said.

“Now let’s work on the details of the agreement. Something that should demand one more week of work,” explained the minister, after meeting with governor of Rio de Janeiro, Luiz Fernando (Bigfoot) Pezão.

The minister ruled out the granting of new loans to the government of Rio de Janeiro by the federal government, but he again mentioned that privatizations may be in the state’s recovery plan. Meirelles also said that Rio de Janeiro has room to increase revenues and reduce expenses.

According to Governor Pezão, the agreement is a guarantee that the state will have a balanced financial situation in the future. “I think it’s an extraordinary breakthrough for Rio de Janeiro. Rio is once again a viable state, and it is a state that will not be more dependent on oil alone. A state that will be able to honor our commitments, pay our bills on time,” said Pezão.

After the meeting, Meirelles and Pezão met with the President of the Republic, Michel Temer. When finalized, the plan will be submitted for the analysis of Temer and the president of the Federal Supreme Court (STF), Carmem Lúcia, who must approve the agreement.

Earlier this week, after a meeting with Pezão in Rio de Janeiro, Meirelles stressed that the plan aims to definitively solve Rio’s fiscal problem, which it fell into with the loss of oil revenues. He stressed that the plan is based on austerity measures already presented by the state government.

Violent confrontations erupted across the country last month after Brazil’s Senate approved a bill which will limit government’s spending for the next twenty years, by 53 votes against 16. Despite the protests, economists say that this is the first important measure by the Temer government to help the country’s ailing economy.

David Drummond, who used to work for KPMG and is a Canadian expatriate living in Rio shares his disappointment with some of the economic austerity measures, including the new minimum wage. “I think in a country with some of the world’s highest paid politicians, that there are hard working people getting paid so poorly is a disgrace.”

Adding, “While North America and Europe grapple with questions about a livable wage, the Brazil government grants what is effectively an inflationary increase to its minimum wage which would still be nearly impossible to survive on in any Brazilian city, and the tone deaf politicians pat themselves on the back about it.”

Regarding an expected debt restructuring as being central to the recovery plan, Drummond explains, “While it’s great that Rio is getting some much needed debt relief, the state and municipal governments are in desperate need of complete overhauls as the cost of overlapping, over staffed, and over all useless bureaucracy is totally insane.”

Concluding, “The Federal government is helping Rio and has already helped some other states out of financial jams, but who’s going to step in when the Federal government has to admit that it too has run out of money.”