September 5, 2017 / 7:03 PM / a year ago

Brazil's Rio state secures $20 billion through federal rescue plan

BRASILIA (Reuters) - Brazil’s government announced a financial rescue plan for cash-strapped Rio de Janeiro state on Tuesday that should allow it to pay about 63 billion reais ($20.16 billion) in salaries and debts through 2020.

Brazil's Finance Minister Henrique Meirelles talks to the audience during the Brazilian Steel Conference in Brasilia, Brazil August 23, 2017. REUTERS/Adriano Machado

The plan includes a three-year reprieve for the state on servicing loans from the federal government and an estimated 11 billion reais in loans from public and private banks.

It is contingent on spending cuts by the state government and measures to raise revenues, authorities said. It also calls for the mandatory privatization of the state water and sewer company Cedae.

Finance Minister Henrique Meirelles told reporters the state should start receiving the loans within 30 days, enabling it to pay overdue salaries that have led to successive protests and strikes in the crime-plagued state capital, also called Rio de Janeiro.

“The state will start to come back to normality,” Meirelles said, adding that the plan could be extended beyond the initial three years if necessary, as Brazil emerges from its worst recession on record.

The federal aid program follows the deployment of 8,500 soldiers to curb escalating violence in the state capital in July, a year after it hosted the 2016 Olympic Games.

Former state governor Sergio Cabral, whose administration boosted state spending ahead of the 2016 Games, is in jail on charges of leading a major corruption scheme that included buying votes at the International Olympic Committee, police and prosecutors announced separately on Tuesday. [L2N1LM0CX]

State lender Banco Nacional de Desenvolvimento Econômico e Social SA (BNDES) will coordinate bank loans to the state, Meirelles told a press conference.

He added that the southern state of Rio Grande do Sul has been engaged in preliminary talks aimed at securing a similar rescue deal.

($1 = 3.1247 reais)

Reporting by Silvio Cascione; Editing by Tom Brown

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