June 14, 2017 / 12:22 PM / 7 months ago

Brazil's Temer to back refinancing of $15 billion owed by states: sources

RIO DE JANEIRO (Reuters) - Brazil’s President Michel Temer has signaled his support for a plan to refinance 50 billion reais ($15 billion) owed by state governments to the development bank BNDES, alongside the securitization of some of their debt to the National Treasury, three people familiar with the plan said on Wednesday.

According to the people, who attended a dinner between Temer and Brazilian state governors late on Tuesday, the Brazilian leader wished to find a solution as soon as possible to the mounting debt burden of regional governments.

A refinancing of 20 billion reais in BNDES debts is “just a step away” and may be ready by September thanks to legislation that facilitates such a deal. The remaining amount hinges on an executive decree, said the person, who requested anonymity to speak freely about the plan.

A second person said a separate executive decree allowing states to bundle some of their debt with the National Treasury into securities, and sell them to investors, is being analyzed. Government and private-sector banks could participate in the process, the person said.

Since taking office a year ago, Temer has offered states some debt relief without undermining his vow to narrow a record high budget deficit. Still, economists such as Insper professor Marcos Lisboa point to the risk of a watered-down austerity plan to drum up political support as Temer faces a corruption probe.

Temer’s office did not immediately comment.

Several states have struggled to pay salaries for police and doctors and to keep hospitals stocked with medical supplies. Their finances have been squeezed by a steep decline in commodity prices, a prolonged recession and years of budget mismanagement.

Writing by Guillermo Parra-Bernal; Editing by W Simon and Paul Simao

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