Brazil: Strategic developments in Brazil
The Union settled R$244 million for states and municipalities in September The federal government paid R$244.01 million in debts of states and municipalities that were in default in September. The data on honored guarantees and counter-guarantee recovery are in the Monthly Report on Guarantees Honored by the Union in credit operations and Recovery of Counter-Guarantees (RMGH), released by the National Treasury this Thursday (15). Of the total paid in the month, the largest portion was from debts of Rio Grande do Sul, which amounted to R$237.71 million; there were also R$6.24 million for Rio Grande do Norte and R$64.89 thousand for the municipality of Santanópolis (BA). Related news: Tesouro Direto breaks record in August with R$15 billion in investments. BC creates indicator to track negotiated salary adjustments. Market raises inflation forecast to 5.22% in 2026. In the year-to-date, debts honored by the Union total R$3.38 billion. Since 2016, the Union has made payments totaling R$89.90 billion to honor guarantees in credit operations of states and municipalities. The Fiscal Responsibility Law states that the federal government makes the payments on the condition that states and municipalities offer counter-guarantees of equal or greater value. Thus, should states or municipalities fail to pay installments of guaranteed contracts, the Union will be responsible for honoring the debts, as well as executing the counter-guarantees offered to recover the credit. In addition to the original amount due, default interest, fines, and other charges provided for in the loan agreements are charged from the debtor. The National Treasury also highlights that if states and municipalities do not pay their commitments or delay payment, they are prevented from obtaining a guarantee from the Union for new financing contracts for up to 12 months. States with an active Fiscal Recovery Regime (RRF) will be able to contract new credit operations with a Union guarantee. However, the Union is prevented from applying the counter-guarantees to those who obtained judicial injunctions. Recovery The report shows that, since 2016, the Union has recovered R$6.06 billion from subnational entities. In September, R$6.64 million were recovered. “The main factor explaining this low volume of recovered amounts is that a large part of the honored guarantees, approximately R$80.09 billion, are from states that participate or participated in the Fiscal Recovery Regime (RRF) and, for this reason, have the benefit of temporary suspension of the execution of the counter-guarantee", informed the Treasury. In addition, there are R$528.05 million that cannot be recovered by the Union due to judicial decisions. The report also shows that there is R$1.9 billion used by the states of Alagoas, Espírito Santo, Maranhão, Pernambuco, and Piauí as compensation for losses in the collection of Tax on the Circulation of Goods and Services (ICMS) in 2022. Complementary Law 201/2023 provides for relief for states, municipalities, and the Federal District, to compensate for losses resulting from the reduction of their revenues.
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