BRASILIA: Brazil’s Supreme Court rejected a request by the government and states that certain outstanding legal costs and payments owed to individuals be indexed at a reduced rate, a decision which could cost more than 40 billion reais.
Indexation of these legal-based credits to the IPCA-E rate of inflation was already in place. The government and states had sought to get it changed to the so-called Reference Rate of interest, which is generally lower.
The Supreme Court also backdated the IPCA-E indexing with immediate effect to 2011 instead of 2015, which the government had wanted as a way to soften the financial blow.
According to estimates from the Attorney General’s office, this ruling could cost the public finances 40.8 billion reais ($10 billion).
President Jair Bolsonaro has made restoring Brazil’s public finances to health one of his top economic priorities. Many states are heavily indebted and some are effectively bankrupt, while the nation’s gross debt as a share of its economy just hit a record high of 79.8%.
A landmark overhaul of the country’s pension system, which aims to save the public purse around 800 billion reais ($195 billion) over the next decade, is expected to be passed into law by the Senate later this month.
The government, central bank and many economists insist that pension reform will boost confidence, investment and ultimately economic growth, although it is not the only economic reform Brazil needs, they say.