MG’s billion-dollar debt that motivated Haddad’s attacks was not incurred by Zema

Minas Gerais’ R$165.5 billion debt to the federal government was not only generated by the current governor Romeu Zema (Novo-MG), who took over management of the state in 2019 and who was re-elected in the first round last year. Much of this refers to a liability left by his predecessors due to loans acquired between 2008 and 2013 and a capitalization with the Union in 1990, according to secretaries.

In total, these loans totaled US$6.1 billion, which were corrected over the years with exchange rate variations and interest charged.

Part of this money also refers to contracts signed in 1990, when the state had to borrow money to assume the debts left by the extinction or privatization of the state banks MinasCaixa, Bemge and Credireal, and which led to refinancing with the Union in 1998 – the debt jumped from R$18.6 billion to R$141 billion in 2023.

This amount became a snowball that reached the current political dispute and isolated Romeu Zema from the alliance signed between the government of President Luiz Inácio Lula da Silva (PT) and the current president of Congress, Senator Rodrigo Pacheco (PSD-MG) .

Lula’s government, through Minister Fernando Haddad, of Finance, sided with Pacheco in the proposal to find a solution to the financial crisis that weakens Zema and strengthens the senator for the dispute to succeed the Tiradentes Palace in 2026.

The strategy would also weaken Zema as a new force on the right alongside – or, just a short distance away – from Tarcísio de Freitas (Republicanos-SP). The governor of the richest state in Brazil, São Paulo, is appointed as the natural successor to the Presidency of the Republic in 2026 if the ineligibility of Jair Bolsonaro (PL) is maintained.

Interest rates made the debt skyrocket

Zema’s government justifies the billion-dollar debt left by its predecessors to the economic indicators used to formulate the percentage of interest used. Haddad even said that he is responsible for R$60 billion of the total owed.

Since 1990, when the state had to take money from the Union to clean up the accounts of state banks, politicians such as Newton Cardoso (MDB), who made the first transaction, Hélio Garcia (PTB), also emedebista Itamar Franco, have passed through the local government. the tucanos Aécio Neves and Antônio Anastasia (today in the PSD, the same party as Pacheco) and, until Zema’s election, the PT member Fernando Pimentel.

Zema categorically stated during the two elections in which he was elected that the state was already broken when he was left by Pimentel.

The Union of State Taxation, Inspection and Collection Servers (Sinfazfisco-MG) stated that the correction index used during the loan period, the General Price Index – Internal Availability (IGP-DI), was the determining factor in creating the “serpent’s egg”. In 2017, the indicator was replaced by the Broad Consumer Price Index (IPCA), which is considered by the Union as the country’s official inflation.

Survey carried out by People’s Gazette points out that the IGP-DI variation between 2008 and 2017 increased by 58.82% in the period (see here), while the IPCA has since accumulated 31.7%.

The Minas Gerais government said that the average evolution of debt after changing the indicator was 8% in the last five years, with a growth of 36% in the period. The upward variation in inflation refers to other built-in charges, but it helped to reduce liabilities by R$9.5 billion.

The 2022 refinancing of installments not paid due to court injunctions, worth R$41 billion, also guaranteed a reduction of over R$6 billion in default charges.

Pacheco steps in front of Zema to resolve debt

As the intention is to strengthen Pacheco for the succession to Palácio Tiradentes in 2026, he presented Haddad this week with a proposal to resolve the Minas debt.

Pacheco announced his intention to request in court the extension of the Minas Gerais state’s obligation in relation to the debt until March 31, 2024. Currently, Minas is exempt from payment until December 20, according to the decision of the Federal Supreme Court (STF), allowing accession to the tax recovery regime.

Pacheco and Haddad also have the support of Minister Alexandre Silveira, of Mines and Energy (MME), who is from Minas Gerais, from the same party as the president of Congress, and a friend of Lula.

However, Pacheco criticizes this regime, claiming that it “does not solve the problem, it only postpones and increases the value of the debt”.

“The Union is a creditor, with final and unappealable judgment, it can demand payment [da dívida]but he is collaborating with the state to wait and have a positive outcome in this”, said the senator.

There is the possibility of a new adherence to the Fiscal Recovery Regime (RRF) and an alternative proposal that involves the federalization of state-owned companies, such as Cemig, Codemig and Copasa, using shareholdings to pay off the debt.

While the new model is discussed, Zema indicated that he will continue negotiations with the Legislative Assembly to join the RRF and keep state-owned companies in the hands of the state. The fiscal recovery model, however, has generated dissatisfaction and led other governors to request revisions, seeking to extend the term and change the debt index.