Minas Gerais Governor Takes Charge, Tackles State Debt with Propag
Union debt repayment authorized: Zema granted permission by ALMG to utilize social security funds and compensations for debt settlement.
Minas Gerais's legislative assembly (ALMG) has granted Governor Romeu Zema the green light to employ his active debt portfolio and social security compensations to offset a significant portion of the state's staggering R$ 165 billion debt with the federal government. This move forms part of the Full Debt Payment Program (Propag), a federal initiative designed to streamline state debts.
In essence, Romeu Zema now has the autorization to mobilize these financial assets, potentially securing at least R$ 3.5 billion in savings. This decision followed a series of meetings and propositions, dubbed the "second slice of the Propag package," which Romeu sent to ALMG last month.
The credit portfolio in question has been in development, intertwined with social security compensations, with a deadline for approval set to October 30. However, the ministry of finance requires the state to announce its decisions regarding the use of such credits by that date.
Now that ALMG has approved these proposals, the ball is in Romeu Zema's court: he must decide on which specific credits to employ in the negotiations to join Propag. Tadeuzinho, ALMG's speaker, affirmed the dialogue was ongoing and evolving, understanding the urgency of the issue for the state.
This ingenious strategy offers several advantages, both directly and indirectly. The credits gained either by selling them to banks or private investment funds, or by offsetting them directly with the Union, can significantly decrease the state's debt. Furthermore, these funds can also be utilized to address Propag counterparties, like contributions to the Equalization Fund and investments in vital areas like education and infrastructure.
Estimates from Secretary of Finance, Luiz Claudio Gomes, projected the potential return on investment (ROI) to be between R$ 3.5 billion and R$ 4 billion. However, Tadeuzinho, the ALMG's president, suggested a more conservative ROI of R$ 2 billion, citing his House's studies and the complexity of the process.
What Goes into Social Security Compensations?
When a government employee retires under Minas Gerais's local social security regime but had previously contributed to the National Social Security Institute (INSS), the state becomes entitled to compensation from the Union, representing the employee's contributions to INSS. Conversely, the state must also reimburse the Union when the employee's career path changes direction.
The approval of this proposal for social security compensations requires the exclusive use in Propag. The text also forbids the transfer of credits to private institutions and obliges the state to replenish the used offsets within 12 months. Otherwise, the Financial Fund for Social Security might become depleted.
Romeu Zema still needs to seek approval from the Ministry of Finance, with a formal request to be submitted by the end of 2025. However, the speaker of ALMG assured that this move is of great importance, but there are other key projects, such as the spending cap and the PEC on privatizations, which require equal focus.
Keywords: Debt of Minas, Previdencia Compensations, Propag, Romeu Zema, ALMG
In light of the approval by the Minas Gerais Legislative Assembly (ALMG), Governor Romeu Zema now has the authorization to utilize social security compensations as part of the Propag debt reduction program. The use of these funds for Propag is exclusive, and any offsets must be replenished within 12 months to prevent the depletion of the Financial Fund for Social Security. Furthermore, this strategy, involving the use of finance, business, politics, and general-news components such as social security compensations and the Propag program, is crucial for addressing the debt of Minas Gerais while potentially generating a significant return on investment.
