Strategy

Rio Gets $849 Million Pre-Olympics Bailout

Brazil's federal goverment steps in after the state of Rio de Janeiro declares its finances are a "public calamity."
Matthew HellerJune 22, 2016

The Brazilian government is providing the financially embattled state of Rio de Janeiro with an $849 million bailout just weeks before the Olympic Games begin.

Rio’s governor had declared a “public calamity” last week as a result of its deteriorating finances, which have been hit by a decline in oil royalties and the costs of hosting the games. Brazil as a whole has been struggling with its longest recession since the 1930s and political turmoil that forced President Dilma Rousseff to step down.

In a decree published Tuesday, the federal government said Rio would use the bailout funds for public security during the Olympics and Paralympics. The Wall Street Journal, citing a government spokesman, reported that the bailout should also free up funds within Rio’s state budget to, among other things, finish an expansion to the subway system in the state capital.

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Brazil’s acting president, Michel Temer, is keen to avoid a national embarrassment during the Games. To avoid a backlash from other states, Brazil’s Treasury will essentially forgive about 50 billion reals ($14.8 billion) in debt owed by state governments.

“A fiasco in the Olympic Games would hurt an international image already shaken by questions of the legitimacy of the Temer administration,” João Augusto de Castro Neves, a Brazil analyst at Washington-based consultancy Eurasia Group, told the WSJ.

But Rio de Janeiro newspaper O Globo called the transfer a “donation” from federal taxpayers for the Olympics.

“When a government lives off of events, a crisis never begins with the shutdown of some big public work or a project related to the show,” O Globo columnist Elio Gaspari  wrote. “The bill always hits basic services at the ground floor.”

Rio’s financial crisis has already forced the state to cut spending on crucial services such as education, health care and policing in recent months. “The states need to fix their fiscal situation and redress some of the profligacy of recent years,” Alberto Ramos, an economist at Goldman Sachs, said, warning that “Otherwise bailouts will become recurrent events.”

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