Pandemic could ravage already-feeble Brazilian states’ finances

In recent years, several Brazilian states have found themselves in dire financial straits, with budgets cut back to the bone and difficulties paying the wages of civil servants. The Covid-19 pandemic has come along to make this situation even more desperate, and Brazil’s states are now relying on help from the federal government. At the end of May, President Jair Bolsonaro submitted a bill instating a BRL 125 billion (USD 24.5 billion) support package for state governments but stopped short of providing another BRL 8.6 billion on Wednesday afternoon, vetoing legislation that would extinguish a Central Bank fund and hand the money over to the states. The fund will still be made extinct, but the administration will use the resources to pay off public debt and ease their finances.

Congress and state governors were left incensed, as they claim even the BRL 125 billion is insufficient to keep their heads above water. Furthermore, it has been 70 days since the federal government first promised bailout money to states, and nothing has been paid out since.

President Jair Bolsonaro has been feuding with Brazil’s state governors since the beginning of the pandemic, largely due to the head of state’s opposition to social isolation measures implemented nationwide by individual state administrations. However, governors have been left in an increasingly weak negotiating position, as the budgetary impact of the coronavirus crisis becomes larger every day.

States require support from the National Treasury,...