(Adds Meirelles comments, context)
By Maria Carolina Marcello and Alonso Soto
BRASILIA Dec 20 Brazil's lower house of
Congress on Tuesday removed many of the fiscal austerity
commitments that cash-strapped states had agreed to in exchange
for debt relief, once again derailing government efforts to
enforce fiscal discipline in states.
The lower house passed a bill that allows states in the
worst financial conditions to halt debt payments and rework
commitments with the federal government and service providers.
However, it removed measures imposed by President Michel
Temer to force states to increase pension charges on employees
and forbid local governments from raising wages and creating new
jobs. The bill now heads to the president for his signature.
The defeat puts into question Temer's political support in
Congress to approve other unpopular reforms to rebalance the
country's fiscal accounts and help rescue the economy from a
recession that threatens to stretch into a third year.
The legislation also reduces debt payments and extends the
maturity on 427 billion reais ($127 billion) of debt owed by all
of the 27 states.
"It was not possible to keep the bill exactly as the finance
ministry wanted," said Rodrigo Maia, the head of the lower house
and an ally of Temer. "The states will get benefits, but they
will also have to limit their expenditures for two years."
Lawmakers did keep a provision that limits states' spending
by the rate of inflation for two years, much less than the 20
years for the federal government in a similar amendment approved
by Congress last week.
Finance Minister Henrique Meirelles said Temer could veto
part of the bill and that the government would have the last
word on states' "fiscal recovery" requests to rework their
Time and time again Temer and Meirelles have had to
backtrack on efforts to increase fiscal rigor in states now
struggling to pay workers and honor their debts.
Temer, weakened politically by a government corruption
scandal, this week agreed to release more than 10 billion reais
from an amnesty asset program to states and municipalities even
after they scrapped his plan to impose wage freezes in exchange
for the money. The move came after states filed a lawsuit to
force the government to share the money.
(Reporting by Maria Carolina Marcello; Writing by Alonso Soto;
Editing by Alistair Bell and Andrew Hay)