BRASILIA: Three Brazilian states are struggling to pay their employees, as the country contends with the ongoing economic downturn. Minas Gerais, Rio Grande do Sul and Rio de Janeiro have all been unable to pay state workers on time, delaying salaries for months at a time, and having to pay an annual bonus, called the 13th salary, in installments.
Rio de Janeiro, long dependent on its share of royalties from the sale of oil from offshore wells, has arguably been hit the hardest. The global decline in oil prices has hit that state particularly hard, and a spree of salary increases and new hiring by the state government in recent years has forced it to ask the federal government for help in postponing interest payments on the many loans it has taken out. Rio spends an alarming 90 percent of its monthly income from taxes and other fees just to meet its payroll and pension commitments. Under a federal law, Brazilian states and cities are not allowed to spend more than 60 percent of their monthly income on salaries. Those that do are subject to punishment, such as the withdrawal of loans from the federal government.
Brazilian TV viewers were witness to dramatic scenes in December when Jornal Nacional of Globo TV showed desperate Rio state workers protesting outside government offices, demanding that their delayed salaries be paid. “I’m afraid I might be thrown out of my home as I haven’t paid my rent for three months,” said one woman who had not received her salary for several months. “I have never felt so humiliated in my life before,” said another state employee as he stood in line to get a basket of food given out by a charity to help the unpaid workers who had no money to buy food.
In an attempt to bail out those states in the direst situation, Brazilian President Michel Temer sent a package of measures to the national Congress in December, in which the federal government would waive interest payments on loans it had made to these states for at least three years. In return, Temer asked that states commit themselves to privatizing state utility companies, and freeze salaries and new hires of state employees. Congress approved the measures but stripped out all of the steps that the federal government had asked the states to commit themselves to. Temer signed the measures into law, while vetoing parts that allowed the states to not privatize their utilities and freeze salaries.
The governor of Rio de Janeiro, Luiz Fernando Pezão, was invited 10 days ago to Brasilia to have talks with Temer and Finance Minister Henrique Meirelles. After hours of talks between closed doors they announced an agreement in which the state of Rio would be relieved from paying interest on its federal loans for the next three years, a savings of 14 billion reals (US$4.35 billion). At the same time, Rio will renegotiate its debt with public banks, worth up to 11 billion reals (US$3.42 billion), according to Veja newsmagazine. In return, Rio will have to cut the number of weekly work hours of state workers, and cut their salaries accordingly. The federal government also wants the Rio water and sewage company to be privatized within three years. The state of Rio is currently hobbled by a debt of 19 billion reals (US$5.91 billion).
The deal is sure to face much opposition by Rio’s state workers, as according to the country’s 1988 Constitution the salaries of public workers cannot be reduced. The federal government is hoping that the current president of the Supreme Federal Court Carmen Lucia will help convince the entire court to approve this agreement, arguing that it is an exceptional situation that the state of Rio is facing. The full court is expected to discuss the measures when it returns from its summer break in early February.
“I think that this point of cutting work hours and salaries of state workers in Rio is a very difficult one,” said Paulo Feldmann, a professor of economics at the University of São Paulo, in a phone interview with Arab News. “But I think that Carmen Lucia has a vision of thinking of the good of the entire country. I hope that the Supreme Federal Court rules for the entire country, and not just for the interests of the state workers.”
Roberto Piscitelli, professor of economics at the University of Brasilia, partially agrees. “There is going to be an impasse now with the Legislative Assembly of Rio. They are going to resist the privatization of the water and sewage company, and the cut in work hours and salaries of state workers. No one wants to give up their autonomy, as this will tie their hands,” he said in an interview. “It’s a very forced agreement. The relationship between Brasilia and the states is quasi-colonial.”
But Piscitelli sees some light at the end of the tunnel. “When the country begins to grow again, and if the price of oil continues to rise, then this problem will not continue to be so grave,” he said.
Brazil has had negative growth for the last couple of years because of the recession and the political turmoil last year that saw President Dilma Rousseff be impeached by Congress for economic mismanagement. Although the final economic figures are not out yet for 2016, it is expected that GDP will have shrunk 4.5 percent last year, according to the news site exame.com. The World Bank says it expects Brazil to grow 1.2 percent this year. Feldmann says he predicts 2 percent growth in 2018, which is still far from the heady growth of 6 and 7 percent that Brazil experienced in second administration of Luis Inácio Lula da Silva from 2007 to 2010.
There are an estimated 12 million Brazilians currently unemployed, and the economic slowdown has cut into taxes that states and the federal government depend on for revenue. Many also blame former President Rousseff for her tax cuts in 2014 that were meant to give a boost to Brazilian car and computer chip manufacturers, among others. President Temer has begun to slowly but methodically rollback these tax cuts, saying that the federal and state governments need these revenue streams now more than ever.
“In 2014 Rousseff broke Brazil financially with the tax cuts she gave to Brazilian industries,” said Feldmann. “The national deficit of 80 billion reals (US$24.83 billion) at the end of that year was exactly the same amount in tax cuts that she had given to local companies. We are expecting that by 2018 all of the tax incentives given by Rousseff will have been roll backed.”
The economic hard times have even hit the Federal District, where the capital Brasilia is located. Long one of the richest regions of the country because of the high concentration of well-paid federal government workers, the governor of the District this month raised public transportation fares by 25 percent, after his administration struggled to pay all of its workers in December. This did not go down well with the public who protested on the streets. Last week the Legislative Assembly voted overwhelmingly to roll back the fares.
Both Feldmann and Piscitelli say that Brazil has already gone through a similar crisis in the 1990s when several states became dangerously indebted after taking out too many loans with state banks. “The crisis was dealt then by the federal government, which had to bail out the states, and it took a long time to recover from,” said Feldmann.
The next big battle is Temer’s attempt to reform the national pension system by raising the age of retirement and cutting back pensions. “I think that Temer will be able to get Congress to pass the new age requirements, but government workers are going to fight tooth and nail to keep their generous pensions,” he added.