Source: Valor Econômico, 16/08/2005

By Marta Watanabe

BRASILIA - The devaluation of the dollar and the negative variation of the IGP-DI are contributing to reduce the growth of the consolidated debt of the State of São Paulo. According to the São Paulo Finance Secretary, Eduardo Guardia, the ratio between the Net Consolidated Debt (DCL) and the Current Net Revenue (RCL) fell to 2,05 in June. The proportion draws attention after the State closed 2003 with 2,24 and last year with 2,23.

At the end of the first quarter of the year, the State of São Paulo had already managed to reduce the debt-to-revenue ratio to 2,11. The lower variation of the IGP-DI, which is the debt index, contributed to the picture. In addition, exchange-indexed contracts, which account for 4,8% of consolidated debt, decreased by 8% from December 2004 to April 2005. The dollar continued to decline, registering a 7,47% decline from the end of April to yesterday.

If the situation persists until the end of the year, São Paulo may close 2005 fulfilling the limit of 2 in the debt / revenue ratio provided for by the Fiscal Responsibility Law (LRF) for the States. The limit would be reached in 2005 without the State of São Paulo having to discuss the date when the targets foreseen by the law will come into effect. São Paulo, along with other states, has always maintained that it strictly complies with the LRF because the initial counting date is 2002, when São Paulo's debt / revenue ratio reached 2,27. As Guardia has always said, São Paulo is part of the LRF because it has reduced the relationship between debt and revenue to fifteenth of the year since 2002. Public accounts specialist Amir Khair says, however, that the initial reference date for the framing in the LRF is 2001 and not 2002.

Since São Paulo had a debt / revenue ratio above 2, in 2002, the State has defended the change in the index that indexes the net consolidated debt. For the States, the IGP-DI impaired the assessment of the limits of fiscal responsibility because it reflected in a very sharp devaluation of the real against the dollar. This would have caused the States' debt to grow a lot in relation to revenues.

Even with the reduction in the IGP-DI variation since the beginning of the year and even with the negative variation registered in June and July, Rio Grande do Sul and other States decided to take the fight against the IGP-DI as a debt index for the Justice

With greater revenue and cash on hand, the State of São Paulo is preparing a new package of tax benefits. Governor Geraldo Alckmin (PSDB) announced yesterday that on September 15 he will release the second "tax spring". In other words, this year the package of tax rate reductions of the Tax on Circulation of Goods and Services (ICMS), which had its first version in September last year, should be repeated this year.

In 2004, the government reduced the tax rate in several industrial sectors, such as cosmetics, food and auto parts, among others. Alckmin did not want to advance the segments that could be benefited. "We are checking the sectors that need stimulus, combing production chains that include investments, small companies and labor intensive", says Alckmin. "The definition of sectors is made according to the potential for generating employment and income", completes Guardia.