Environmental tragedy, private parasitism and public debt

Image: Brazilian Navy/ Disclosure


It remains to be seen the effect of climate catastrophes on the crisis and decomposition of capitalism that lead to social and humanitarian tragedies, as in Rio Grande do Sul

The federal government announced the suspension of payment of Rio Grande do Sul's debt service to the Union for a period of three years. The funds not used for payment should form a fund for post-flood reconstruction of the state. The suspension was sent to Congress for analysis. Rio Grande do Sul is already part of the Fiscal Recovery Regime (RRF), created in 2017 to help states with high levels of debt in relation to revenue.

Adhesion to the Tax Recovery Regime depended on the state's expression of interest and approval by the federal government. In exchange, state governments must approve a recovery plan, adopting some measures for fiscal balance, such as implementing a spending cap. According to the Ministry of Finance, Rio Grande do Sul's debt to the Union totaled R$95,7 billion. According to the state government, the debt grew due to the formula adopted by the Union to correct the amounts owed, an obvious claim in its legitimacy. In 2024, to date, approximately R$1,2 billion has been paid by Rio Grande do Sul. The estimate was for a total payment of R$3 billion this year – payment suspended by the announced measure.

Rio Grande do Sul's internal debt dates back to the 1990s, when the debt totaled R$7,7 billion (that is, there was an increase in debt of almost R$90 billion in two decades, in nominal values ​​- without updating) . Credit lines worth R$2,5 billion were also released under the Incentive Program for the Reduction of the State Public Sector in Banking Activity (Proes), created in 1996. The federal government's initiative aims to avoid spending R$11 billion ( corresponding to the sum of 36 debt installments) and a further R$12 billion with interest on the debt, over a period of three years.

This is a suspension of payment for that period, as this unpaid amount will have to be disbursed: the measure only temporarily suspends payments. This only prolongs the drama, as RS will have to pay the arrears, which could lead to its fiscal collapse, considering that the state will have a major reduction in its economic activity, as a result of the current tragedy, which will result in a reduction in its revenues, as it cannot increase the tax burden.

This constitutes a general problem, made worse by flooding. In Brazil, even with the Fiscal Responsibility Law – LRF, of May 4, 2000, which established social spending limits for the Union, states, Federal District and municipalities, public debt continued to grow. According to Arildo B. Oliveira, acting president of the Federation of Industries of the State of Rio Grande do Sul (FIERGS), 90% of Rio Grande do Sul's industrial GDP is flooded, underwater. There will, therefore, be a drop in economic activity that will lead to an even greater drop in revenue.

However, Rio Grande do Sul's fiscal framework becomes more delicate when we realize that the state was already under the Fiscal Recovery Regime, a regime applied to “help” states with high levels of debt in relation to their revenues, without touching in the causes of the fiscal crisis. The states that joined the Fiscal Recovery Regime were: Rio Grande do Sul, Minas Gerais, Rio de Janeiro and Goiás. According to the government, the states owe around R$740 billion. The majority is concentrated in SP, RJ, RS and MG. The Fiscal Recovery Regime is a financial recovery plan, with austerity measures aimed at fiscal balance, introducing a spending cap, supplementary pensions and privatizations.

With the program, the debt contracted by states with the Union is paid in installments and paid in installments. Rio Grande do Sul's plan provides for installments until 2030, when the state should, it is said, be able to pay off the debts. In essence, we have a new dimension of spending ceiling, since the spending limit was a requirement in the various stages of renegotiation, whether in 1997, when the debt was federalized by Law 9496/97 and rolled over for 30 years, or by Complementary Law 156 , which in 2016 rolled over this debt for another 20 years.

Rio Grande do Sul's public debt follows the same trajectory as that of other Brazilian states. It replicated the World Bank's policy to combat poverty, precisely after having encouraged it through measures that generated an amplification of regional and social inequalities. The current debt had its origin in external debt, especially after the civic-military coup of 1964. This debt, according to the Central Bank, began in 1952; It ended in 2000 (we consider the period from 1948 to 2003) and had several phases.

At first it was based, as said, on external loans; Only at the end of the 1980s did the process of internalizing state debt begin. From 1997, with Law 9496/97, the debt was federalized. Its loans occurred in the areas of electrification, thermal plants, telecommunications, ports, flood containment, road system, state energy company, refinancing of external debt, constitution of SIVAM, combating poverty and rural exodus. This debt was marked by profound illegitimacy, as demonstrated by the CPI on public debt from 2009 to 2010. In large part, these loans served to implement the infrastructure necessary for capital accumulation, a process that attempted to legitimize governments that supported the military dictatorship.

As these were loans, mainly from the “euromarket” of currencies, which practiced floating interest rates, these debts exploded when the USA raised the interest rate from 5% to 20%, in 1979, at times when attempts were being made to stabilize the US currency and revalue the dollar. This initiative required, at that time, fiscal adjustment to pay a greater volume of interest, which ended up contributing to the financial crisis of the states in Brazil, which ended up leading to the emergence of Law 9496/97, which federalized the states' debts. In the graph below we can see the trajectory of Rio Grande do Sul’s debt:

The debt growth of borrowing countries became even more accelerated from 1994 onwards, with the high interest rate policy used to guarantee the stability of the Real Plan. The Mexican crisis of 1995, the Asian crisis of 1997 and the Russian crisis of 1998 ended up leading to an increase in the basic interest rate in Brazil. The most striking element of the increase in the debt of Brazilian states was the rules imposed on each one to roll over this debt for 30 years. In the case of Rio Grande do Sul (and most states) the Union charged a rate of 7,5% per year plus IGP – DI (General Price Index – Internal Availability) and the obligation to pay 13% of current net revenue every year.

The Union adopted the practice of charging interest on interest between state entities, called anatocism. This mechanism ended up further accelerating debt growth. After twenty years, having already paid three times the initial volume of loans, Rio Grande do Sul still owed almost four times that volume. A considerable part of this public debt has its origin in Banrisul's debt, via Proes, assumed by the state government when it converted the private debts of the Rio Grande do Sul business community with this bank into public debt. In 2016, when a new debt renegotiation took place via Complementary Law 156, the debt coming from Proes – Banrisul was R$11 billion. Public debt arising from the conversion of private debt contracted by companies, not honored by them, is an illegal mechanism.

It is worth remembering that the states had the possibility of reducing the debt balance with the Union: STF Summary 121 declared illegal the debt or debt balance that resulted from the practice of anatocism. Eleven states won an injunction from the STF based on the summary, which could drastically reduce the debt or, in some cases, even transform the state into a creditor with the Union, if the illegal way of charging interest was removed from the calculation of the outstanding balance. . However, the governors preferred to renegotiate with the federal government a new debt rollover and reduction in indices.

With this, Complementary Law 148 emerged, followed by Complementary Law 156, which rolled over the debt for another 20 years, at the same time that allowed a new stage of debt, external or internal, for the states, as long as they privatized the remaining state-owned companies and if spending cap policies were implemented. In other words, the federal government rolled over the states' debt for 30 years; 20 years later, the states declared themselves in fiscal calamity and gave up on enforcing Precedent 121, which led Rio Grande do Sul to the Fiscal Recovery Regime, which preceded the tragedy; before her, the state was already heavily in debt.

Another factor with great repercussions on the situation of the states resulted from the growing tax exemptions within the war between the states to attract companies. These resignations, plus the Kandir Law, led to a large loss of revenue, which compromised the expenses of each state entity. The 1996 Law, which provides for state taxes on operations relating to the circulation of goods and services (ICMS), exempts primary and semi-finished products intended for export from ICMS.

In Rio Grande do Sul in particular, the Law had a devastating effect, as exporting states were penalized for the tax relief not compensated by the Union. Rio Grande do Sul's losses due to this Law reached R$38 billion in 2023, a value which represents almost a third of the current debt. The states want to make some provisions of the Fiscal Recovery Regime more flexible, such as the spending ceiling, due to the loss of revenue in 2022, due to the limitation of ICMS rates on some products, such as electricity and fuels. The states' other demand is a change in debt contracts, a reduction in interest rates from the current level – inflation + 4% – to a fixed value of 3%.

In other words, the development model in force in the country, particularly in Rio Grande do Sul, prioritizing exports, is the fundamental basis for the states' losses and compromises their revenues, which ends up leading to a scenario that leads to the Regime of Tax Recovery. In the 28 years that the Kandir Law has been in force, we have one of the main reasons for the fiscal crisis. On the other hand, agribusiness, which receives the attention of the three spheres of public power, is largely responsible for the drop in State revenue and the main responsible for the climate changes that are at the heart of the current flood tragedy, which was preceded by a major drought in the region.

The graph above shows that the number of employees in Rio Grande do Sul had a large reduction between 1991 and 2017 and cannot be held responsible for the increase in state expenses. The reduction of servers is an obstacle to the proper functioning of public services, essential in a time of calamity. Rio Grande do Sul's problems, in summary, are: high public debt with the Union, large tax waiver, product of the fiscal war or the Kandir Law, dismantling of the public machine with an intense privatization process. Rio Grande do Sul was a great laboratory for neoliberal and anti-social policies, with a parliamentary group mostly aligned with the BBBB block (ox, bible, bullet and banks), always active in the most conservative political agendas.

Carrying out a citizen audit of Rio Grande do Sul's debt is a fundamental task to reveal the illegal and class nature of these debts, demonstrating that they were contracted to boost the private accumulation of capital, making social policies, the prevention of environmental disasters and attention to damaged population when they happen. The link between the predatory and plundering dynamics of capital, climate change and environmental disasters has been and continues to be analyzed and demonstrated by many researchers.

What remains to be seen is the effect of climate catastrophes on the crisis and decomposition of capitalism, of which the “debt system” is prime proof, which lead to social and humanitarian tragedies, as in Rio Grande do Sul, making this evidence a program and flag of struggle for the workers movement. Suspension of payments and audit of debts: this is the flag.

*José Menezes Gomes is a professor of economics at the Federal University of Alagoas (UFAL).

*Osvaldo Coggiola He is a professor at the Department of History at USP. Author, among other books, of Marxist economic theory: an introduction (boitempo). [https://amzn.to/3tkGFRo]

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