Re-negotiation of Brazilian consumer debt with government guarantees to start September By Reuters

© Reuters. FILE PHOTO: People pass by as a bus is seen in the background in Sao Paulo, Brazil July 5, 2023. REUTERS/Amanda Perobelli

BRASILIA (Reuters) – Brazil’s government announced on Friday that it would begin a program of debt renegotiation with Treasury guarantees in September for low-income individuals, fulfilling one of leftist President Luiz Inacio Lula da Silva’s campaign promises.

According to credit bureau Serasa, some 71.9 million Brazilians have been blacklisted in Latin America’s biggest economy after the pandemic and high borrowing costs to tame inflation hit family budgets.

The first phase of the “Desenrola Brasil” comprehensive renegotiation program will start on Monday, the Ministry of Finance said.

During this phase, the bank will waive debts of up to 100 reais ($20.9) and give income customers up to 20,000 reais the opportunity to renegotiate debt immediately without any rate limit.

There will be no contribution from the Ministry of Finance, but to encourage negotiations by banks, the government will offer regulatory incentives to financial institutions to increase the availability of credit, allowing use of credits estimated at around 50 billion reais.

According to the ministry, around 30 million people can benefit from this initiative.

Renegotiations for people with incomes of up to two minimum wages, the equivalent of 2,640 reais ($552), will start in September, the ministry said. In this case, the renegotiation will have government guarantees for financial and non-financial debt of up to 5,000 reais.

This phase is considered the core of the program and is considered more complex as it requires the government to set up a platform that centralizes data on consumer debt to coordinate discounts from creditors.

The government stated that the program aims to combat the country’s arrears crisis “in a scenario where interest rates have changed radically.”

The central bank has kept its benchmark interest rate steady at a cycle high of 13.75% since September, drawing criticism from Lula.

($1 = 4.7824 reals)