President Luiz Inácio Lula da Silva sanctioned the law that creates a special program for renegotiating state debt. However, the president vetoed points that would have an impact on the primary result (result of government accounts without interest on public debt).
The sanction was published this Tuesday (14) in Official Gazette of the Union. Last week, the Minister of Finance, Fernando Haddad, had informed that both the economic team and the Civil House recommended vetoes.
Called the Full Payment of State Debt Program (Propag), the renegotiation is open until December 31st for states that want to join. The main novelty of the program is that states can pay off part of their debt with the Union by transferring movable or immovable assets, equity interests, credits with the private sector and other assets with the Union. In this way, state companies can come under control of the Union in exchange for debt relief.
Under the program, the installments paid by the states to the Union will be calculated and adjusted monthly, with the possibility of extraordinary amortizations and reduction in amounts in the first five years. During the term of the contract, the state that joins Propag will not be able to contract new credit operations to pay the refinanced installments, under penalty of termination from the program.
In an interview this morning, Finance Minister Fernando Haddad said that the government granted more than the five main opposition governors asked for.
“The project approved by Congress goes far beyond what they asked me to do in the meetings they held with me. It’s part of political life to criticize, but I don’t think they even dreamed that it would be possible for the President of the Republic to act as republican as what was taken”, declared the minister.
Rescheduling
The sanctioned points maintain the core of the project presented last year by the president of the Senate, Rodrigo Pacheco, and approved by Congress at the end of last year. The law allows entities to pay these debts within 30 years and with interest of 0% to 2% per year above inflation. The debt may be partially reduced according to the delivery of assets to the federal government, investment commitments made and contributions to the Federal Equalization Fund, through which states in a bad fiscal situation will compensate states with a good fiscal situation.
Last year, the government had proposed that states that invested in education would pay less interest. Congress abandoned the proposal and voted on Pacheco’s project, which allows states that join Propag to prioritize investments in education, sanitation, infrastructure and security with the money they will save on interest payments.
Points removed
Among the points removed from the text are those that would open the possibility for federative entities that join Propag to be free from meeting goals, commitments and obligations of the Fiscal Recovery Regime in the year of accession. The vetoed item provided for the reduction of counterparts, with deduction of the outstanding balance of investments of social interest from the outstanding balance.
In its justification, the government highlighted that suspending the requirements would compromise responsible fiscal management and the sustainability of the public accounts of the States and the Federal District. Debt reduction with the Union for investments of social interest, Planalto justified, would be unconstitutional because the states and the Federal District would gain a double benefit in the renegotiation, with reduced interest and discount on investments made.
Lula also removed from the text the item that exempted the state that violated the personnel spending limits of the Fiscal Responsibility Law (LRF) from complying with the expected restrictions. If sanctioned, the point would allow the Union to pay the installments of the states’ debts and incorporate them into the debt balance, expanding the fiscal impact of Propag for the federal government.
President Lula vetoed an article that exempted states benefiting from Complementary Law 206, of May 16, 2024, which authorizes the Union to postpone the payment of the debt of federal entities affected by public calamity, from contributing resources to the Financial Equalization Fund. According to the government, the point would create differences in treatment between states in the payment and receipt of resources from the fund.
Another vetoed point was the article that would allow states that present a certain relationship between revenues and current expenses to stop limiting the growth of primary spending. According to the justification, the device goes against the public interest by reducing necessary counterparts for Propag and would compromise the effectiveness of the program. An item that allows the allocation of resources from credit operations to logistics infrastructure works was also removed.
Alleging unconstitutionality, President Lula withdrew an article that would allow the Union to deduct from the value of installments due in debt contracts the resources transferred by the respective state in 2021, 2022 and 2023 for works under the responsibility of the Union. According to the text, the provision is unconstitutional by making the Union assume obligations from past years without prior formalization of agreements, which would bring legal uncertainty.
