Brazil to allow states with good ratings to issue new debt

The National Monetary Council, known as CMN, said it will permit states under the fiscal adjustment program to tap 7 billion reais in new credit backed by the national treasury. The government had not allowed states to issue debt since late 2014.

Earlier this week the government bowed to pressure to hand 5 billion reais ($1.5 billion) in fines from an asset amnesty program to states struggling to pay their employees and bills.The administration of President Michel Temer is worried the fiscal woes of the states could hinder an incipient recovery and raise the discontent among Brazilians after two years of a grueling recession.The CMN, which is made up the central bank chief and ministers of planning and finance, said only states with a Treasury rating of A and B would be allowed to seek new credit.”The measures does not pose a relevant fiscal risk and will give some relief to states without compromising their solvency,” the CMN said. Some Brazilian states have been shut out of debt markets, such as Rio de Janeiro, because they are considered a high risk of default by the Treasury, which guarantees state-issued debt.

Source: The Financial Times