Rio will make adjustments totaling R$ 63 billion by 2020.

Brazil Agency - The state of Rio de Janeiro will make adjustments of R$ 63 billion by 2020, by adhering to the fiscal recovery plan. The adjustment includes increased revenue, measures to reduce expenses, loans and suspension of the state's debt with the Union, informed today (5), the Minister of Finance, Henrique Meirelles. The expectation is that the agreement will be approved by the acting president Rodrigo Maia later today.

Meirelles highlighted that Rio de Janeiro is currently in an "unsustainable and insolvent" situation. With the "rigorous adjustment," the goal is for the state to achieve fiscal balance through the measures outlined in the plan, he said.

The Rio de Janeiro state government filed for fiscal recovery with the Ministry of Finance on July 31st of this year. Following the approval of the agreement, Rio's debt to the federal government will be suspended for three years, extendable for another three.

In May, President Michel Temer signed into law the legislation concerning the fiscal recovery of states and municipalities. The measure allows for the suspension of payments to the federal government, provided that the conditions outlined in the proposal are met.

The minister explained that, after the first three years, an evaluation will be made regarding the need to maintain the plan. "According to the forecasts, the plan should be renewed in 2020," he said.

Loans of R$ 11,1 billion

With this plan, Rio de Janeiro will be able to take out loans from public and private banks. The operations will be coordinated by the National Bank for Economic and Social Development (BNDES), which will assess the collateral.

According to the minister, in the first year the loan will aim to reduce the state's outstanding debts. In 2017, the loan will amount to R$ 6,6 billion and, in 2018, to R$ 4,5 billion.

The state may offer the Rio de Janeiro State Water and Sewage Company (Cedae), which is slated for privatization, as collateral for a loan. Other guarantees will also be considered, such as state receivables, outstanding debt, and other assets.

The National Treasury will guarantee the financing this year. In 2018, an analysis will be conducted to determine whether or not the Treasury will provide a guarantee.

Suspension of debt with the Union

According to Meirelles, in 2017, the suspension of the state's debt payment to the Union will amount to R$ 5 billion. In 2018 and 2019, the amount was approximately R$ 9 billion each year, and in 2020, it was R$ 6,6 billion.

Revenue increase and revenue decrease

The measures foresee an increase in revenue of R$ 1,5 billion in 2017, R$ 5,2 billion in 2018, R$ 6,5 billion in 2019, and R$ 9,4 billion in 2020.

The projected reduction in expenses is R$ 350 million in 2017, R$ 500 million in 2018, R$ 1 billion in 2019, and R$ 2,8 billion in 2020.

Supervisory board

The minister further explained that the plan establishes the creation of a supervisory council to monitor the implementation of the agreement, with the power to suspend it if the measures are not adopted correctly. The council will be composed of representatives from the federal government, the Federal Court of Accounts (TCU), and the government of Rio de Janeiro.

Preliminary discussions

Meirelles added that "preliminary talks" have been taking place, without a formal request, with the government of Rio Grande do Sul to also join the fiscal recovery plan.