Precatorios crisis creates BRL 245 billion snowball – 05/04/2023 – Panel SA

Large Brazilian banks and investment funds estimate that the Treasury will have difficulties in following its plan to issue bonds abroad if it does not find a way out of the imbroglio of payment of precatorios —debt bonds of the Union with final court rulings.

For them, the new fiscal framework postpones the one-time payment of R$ 245 billion to 2027.
For financial institutions, this default must compromise the reputation of the Treasury, which, under the Jair Bolsonaro administration, paid less than 20% of the projected annual value of precatories.

Most of these banks buy and sell these securities in the market, which is estimated to move more than R$ 30 billion in the country.

There are global investment funds operating and they are discredited: they do not understand how the country fails to comply with a constitutional precept.

It explains itself. These bonds gained liquidity from the end of 2021, when Congress enacted a constitutional amendment providing for the automatic use of precatories in the payment of tax debts, concession grants, and purchase of federal properties at auctions.

“The problem is that the new government is pushing this discussion forward, because, if it assumes this debt now, it won’t be able to make public spending. These payments reduce the Budget even more”, says economist José Roberto Afonso, a former consultant of Congress and today a consultant for this market.

For him, by choosing to “push with the belly”, the Lula government creates a snowball.

“I estimate that only about 20% of this projected value [de R$ 245 bilhões] it is the debt itself. The remaining 80% are Selic corrections.”

Afonso considers that the solution would be for the government to immediately assume this debt and issue new securities through the Treasury, with remuneration similar to that of public securities.

“It would be a little below the Selic, reducing the multiplier effect of this debt a little”, he said.

Also according to the economist, in the new framework, the economic team opted to maintain the old fiscal anchor —the spending ceiling— as a way of defining the maximum value of precatories to be paid per year. By this mechanism, this expense is corrected by the inflation of the previous year.

Even so, year in, year out, the Union only pays 17% of the projected amount and the difference is not being properly accounted for in the Union’s consolidated debt.

With Diego Felix

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