Brasilia, March 2013.
1
5/14/2012 to 3/11/2013
Work schedule
Techniques
Reference panels
Review of standards and doctrine (overview)
Circularization
Data analysis
Verification of balances (Integrated System of Federal Government Financial Administration - Siafi, Fiscal
Management Report - RGF)
Review of documents sent by the National Treasury - STN
Submission of preliminary report to managers (STN and Central Bank of Brazil - Bacen)
4
Identify actions of the Executive
Branch to monitor the assets of the
Federal Government with the federative
entities
Review systemic risks
inability to pay the debt
legislative changes
Obtain estimates of the subsidies
granted by the Federal
Government to debtor entities
Estimate any payable residual
value
Assess payment
records and debit balances
7
Law 8727/1993
24 states (100%)
Law 9496/1997
25 states and Federal District - DF (100%)
MP 2185/2001
10 municipalities: major debtors (95%)
Liquidity and solvency of states and municipalities are affected by multiple variables
Overview
National Treasury - STN
Primary Source of data
Base Date: 6/30/2012
Federal Government
Creditor’s perspective Rules in force at the time
8
Legal and operational
aspects
Robustness of the refunding
rules
Significant fiscal efforts of
states and municipalities
Management and control processes
consistent with the materiality
of assets
Preservation of the fundamental rules of
Law 9496/1997 since it was last amended,
more than fifteen years ago
States and municipalities
accounted for about one-
third of the fiscal effort of
the public sector between
2000 and 2011
Period 2000-2011
Results Level
Total Federal State Municipal
Average
Primary 2.28 0.82 0.14 3.21
Nominal (2.06) (1.21) (0.19) (3.35)
% of GDP
Source: Bacen.
10
States and DF have obtained successive primary surpluses (2009-2010: crisis)
245,8
377,5
231,9
356,3
0,56
0,89
0,82
0,92 0,94 0,950,92
0,99
0,92
0,64
0,52
0,76
-
1,00
-
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Receita Primária Despesa Primária Resultado PrimárioR
$ b
ilh
ões
(p
reço
s d
e 2
01
1 -
IGP
-DI)
% P
IB (p
reços co
rrentes)
Sources: STN and Bacen.
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Primary Revenue Primary Spending Primary Result R
$ b
illio
n (
pri
ce
s fro
m 2
01
1 –
Ge
ne
ral P
rice
In
de
x -
In
tern
al S
up
ply
(IG
P-D
I)
%G
DP
(curre
nt p
rices)
Amortization and Debit Balances
Legal Instrument
Amount Refunded
(a)
Amount Paid Debit Balance
Initial average term
remaining
Main
(b)
Interests
(c)
Total
(b+c)
Maturing
(d)
Residue
(e)
Total
(d+e)
Law 8727/1993 33.9 27.4 18.7 46.1 4.8 7.9 12.6 20 months
Law 9496/1997 370.2 61.1 127.6 188.8 218.5 161.1 379.6 182 months
MP 2.185/2001* 41.8 3.9 24.8 28.7 34.8 23.6 58.4 210 months
Total 446.0 92.4 171.2 263.6 258.0 192.6 450.6 *Only the ten municipalities with the highest debit balances are included. Source: National Treasury - STN.
Position on 6/30/2012 R$ billion (constant prices)
Amortization consistent with the terms initially settled: 240 months and 360 months
Law 8727/1993: amounts paid as principal (R$ 27.4 billion) outweigh interest (R$ 18.7 billion),
Law 9496/1997 and MP 2185/2001: refunding still in the first half of their initial deadlines. Interest rates (6% p.a. 7.5% p.a. and 9% p.a.) are more burdensome than Law 8727/1993.
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Subsidies - Law 9496/1997
Source: National Treasury - STN
Position on 6/30/2012 R$ billion (constant prices)
The Federal Government awarded subsidies to entities that renegotiated their debts
Initial subsidy: interest rate differential between the cut-off date and the date of signing of contracts;
Implicit subsidy: continued effect of differential rates in the course of the contractual terms for renegotiation.
Initial Subsidy (a)
Implicit Subsidy (b)
Total (a+b)
94,254.9 135,838.0 230,092.8
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Payable residual amounts - Law 9496/1997 and
Provisional Measure - MP 2185/2001
High probability of insolvency of the debts of the biggest debtors of the Federal Government, with the exception of the state of Rio de Janeiro.
TCU’s previous findings
Entity Judgment
MG 315/2007-P
RS 316/2007-P
SP (state) 317/2007-P
RJ (state) 1948/2008-P
SP (mun.) 2525/2008-2C
2nd Reference Panel Potential insolvency risk perceived from the perspective of debtors.
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Payable residual amounts - Law 9496/1997 and
Provisional Measure - MP 2185/2001
Creditor’s perspective (Federal Government)
Projections of the
National Treasury -
STN
Refunding
Debtor
Residue planned at the end of the initial
term
Extended
term needed (max. 120
months
RLR - Actual Net Revenue affected
during the extended term
needed (No limit)
Law 8727/1993
GO R$ 6 billion 82 months 11%
MA R$ 607.8 million
9 months 10.2%
Lei 9496/1997
MG R$ 41 billion 100 months 13%
RJ (state) R$ 6.3 billion 11 months 13.52%
RS R$ 30.2 billion 120 months 13.81%
SP (state) R$ 91.5 billion 72 months 13%
MP 2185/2001 SP (mun.) R$ 61.6 billion 120 months 20.3%
Data-base: 30/6/2012
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Payable residual amounts – Provisional Measure MP 2185/2001
Municipality of São Paulo
The National Treasury acknowledges care is required in the state capital, given the current conditions, in view of the substantial increase in the Actual Net Revenue affected; Despite its regulatory provision, enforcement of guarantees by the Federal Government is a last resort measure,
A probable 50% increase in the Actual Net Revenue affected in São Paulo - resulting in a new percentage, not over 13%, but over 20.3% of the Actual Net Revenue during the extended term to discharge the residue (post-2030) - even though assured by binding local public income, it would impose severe fiscal constraints to the municipality.
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Payable residual amounts - MP 2185/2001
Proposed solution from the municipality of São Paulo (panel of 7/3/2012)
Reopening of extraordinary term for amortization with benefit of lower interest rates since the beginning of the contract (amendment to art. 3 of MP 2185-35/2001),
Extraordinary amortization (20%) on outstanding debt recalculated (IGP-DI + 6%),
Permission to raise funds for extraordinary amortization of debt;
Funding for extraordinary amortization not subject to the limitations and restrictions of Resolutions 40 and 43 in the Senate.
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Systemic Risk
There is no evidence of credit risk for the Federal Government;
Companion Bill - PLP 238/2013, an initiative of the Presidency, aiming to change the indexing criteria applicable to refunding contracts, does not include an estimate of the fiscal impact resulting from the proposed changes.
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Major legislative proposals under consideration in Congress
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Attributes
Propositions
PLP 238/2013
Presidency
Working Group
House of Representative
s
Federative Pact Committee
Federal Senate
PLS 618/2011
Senator Lindbergh
Farias
PLS 86/2012
Senator Francisco Dornelles
Scope
States and municipalities
States and municipalities
States and municipalities
States
States and municipalities
Index
Broad National
Consumer Price Index - IPCA
Broad National Consumer Price
Index - IPCA
Broad National Consumer Price
Index - IPCA
Long-Term
Interest Rate - TJLP
Broad National Consumer Price
Index - IPCA
Interest rate (p.a.)
4% with monthly
charges limited to the Special System of
Clearance and Custody (Selic) rate variation
2% with monthly charges limited to
the Selic rate variation
4%
Only TJLP
3%
Limit of Actual Net Revenue Affected
11.5%, 13% or 15%
9%
Less than at least 2 percentage points
of the current limits
9%
9%
Extended term
120 months
120 months
Settled according to limit affected
Pending
120 months
Thank you!
Secretary Marcelo Barros Gomes
Director Alessandro Aurelio Caldeira
Team Renato Lima Cavalcante
Joaquim Ramalho de Albuquerque Tito Belchior Silva Moreira
Maria de Fátima Elias da Silva
Contact: 3316-7126 /[email protected]
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Department of Governmental Macro Analysis
Substitute Minister Weder de Oliveira
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