Brazil to start repaying massive debts with state banks

Brazil said on Wednesday it will start repaying massive debts to state-run banks using bond sales, a step towards reining in swollen budget deficits that recently cost Latin America's largest economy its coveted investment grade. Opposition parties have used the debts totalling about 57 billion reais ($14.43 billion) to request the impeachment of President Dilma Rousseff, accusing her of breaking budget laws to boost her reelection campaign last year.
The administration, which denies any wrongdoing, has vowed to repay the debts before January 1. The government started by announcing on Wednesday the sale of 1.5 billion reais ($390 million) in bonds to partly repay a debt to Banco do Brasil. It did not specify when the issuance will take place. Authorities are expected to detail later on Wednesday how the rest of the liabilities will be honored. The debts are owed to state lenders Banco do Brasil, Caixa Economica Federal and state development bank BNDES as well as the state workers' pension fund, FGTS.
Finance Minister Nelson Barbosa, appointed this month, says the government wants to pay the debt immediately to avoid complicating next year's budget as it struggles to shore up finances in the midst of the worst recession in 25 years. "That may be the only positive outcome of the payment: starting 2016 with a clean sheet," said Thiago de Aragao, a partner at political analysis firm Arko Advice. "The opposition will read this as the government's acknowledgment that it did something wrong." After taking office in 2011, Rousseff for years delayed the payment of billions of dollars to lenders that advanced money to popular social programs.
Critics say the delay was meant to artificially bolster government accounts and improve her re-election chances. The delay in payment, an accounting practice dubbed "fiscal back-pedalling," was condemned by the federal audit court, paving the way for a request to impeach Rousseff one year into her second term. Lower House Speaker Eduardo Cunha, a fierce government foe who approved the start of impeachment proceedings this month, said Tuesday that immediate repayment would not undo the past irregularities. He added the lower house will decide by March whether to recommend Rousseff's impeachment. In December, Fitch became the second credit ratings agency to cut its rating on Brazilian debt from investment-grade to junk status, which meant that many foreign investments funds, under their bylaws, could no longer invest in the country.