Note

May 21, 20 - 10:12 am - LABS

Brazilian program to finance payroll is failing and Treasury may offer more guarantees

A credit program created by the Brazilian Central Bank to finance the payroll of companies with resources from the National Treasury and banks is not working. Out of a programmed BRL 40 billion, only BRL 1.6 billion reached firms and Congress is now discussing changes to it, according to Valor Econômico.

One of the ideas being debated is to increase the Treasury guarantee from 85% to 100%, with the government assuming all the risk of default by companies and so remove banks’ fears in granting the loan.

The payroll financing scheme was launched in early April for companies with yearly revenues between BRL 360,000 and BRL 10 million. One of the innovations touted at the time was that the bailout would have a 15% contribution from the financial sector.

The government would contribute BRL 34 billion and the major banking institutions would offer BRL 6 billion. This amount would be used to pay for up to two months of payroll, with deposits directly being made in employees’ accounts, at an interest rate of 3.75% per year.

1.1 million workers

have had wages financed by the program, according to official data. The initial estimate was 12.2 million people would benefit. The other government measure to protect employment, allowing firms to reduce working hours and wages, already reaches 8 million workers.