Brazil Sub-Sovereigns Need Broader Debt Alternatives

Reforms are needed to give Brazilian states and municipalities the ability to issue debt to make investments necessary to improve infrastructure, leaders say. The means to attract investment, particularly foreign funds given Brazil’s low savings rate, are too restricted to get the country’s planned projects completed on time. “The moment one of the states wants to do something it is in conflict, because it has to be authorized [federally],” says Dorothea Werneck, Minas Gerais’ secretary for economic development, when discussing project financing. She notes that federal regulations may not work the same for all of Brazil’s different states. Minas Gerais is working on development bank funding through France’s ADF agency, with private banks including Credit Suisse participating. State-owned Minas Gerais Particpacoes is preparing BRL400m ($194m) domestic bond, and the Codemig development agency is planning a cross-border bond. “It’s a fact that the states are in a tough position to get financing. With everything that needs to be done with infrastructure, there should be a new way to find a solution, ” says Roberto Paolino, financial institutions and public sector head at Citi. Limitation on states taking debt puts Brazil behind other markets like the US, or even Argentina where sub-sovereign entities have issued abroad recently. “It makes sense that maybe now is the time to revisit that. The international market would definitely have appetite for good credits – the larger states like Sao Paulo, Minas Gerais, Rio de Janeiro and others. Given the demographics and the need for infrastructure, it is really the time,” he adds. Multilateral funds have been used to some degree, but there are limitations here too, and given the size of funding needs, all options need to be on the table. Public-private partnerships and concessions should remain in the mix for getting projects financed, but all of the means ought to be available to tap investment. “The PPPs and concessions can b