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Brazil considering emergency loan for Rio state ahead of Olympics

The Brazilian government is considering an emergency loan to the cash-strapped state of Rio de Janeiro ahead of its staging of the 2016 Olympic and Paralympic Games, according to Reuters.

The news agency, citing two senior government officials, said the loan would be guaranteed by the state’s participation in local companies and could also be extended to the states of Minas Gerais and Rio Grande do Sul.

A member of the government’s economic team is quoted as saying: “These states need cash injection. There is no other way. These loans will be backed by states' assets such as banks, utilities, gas and sanitation companies.”

Although the City of Rio de Janeiro has secured funding to build most of the infrastructure for the Olympics and Paralympics, a financial crisis at state level is said to present a risk of disruption to public services during the events, which are scheduled to commence on August 5.

Rio’s secretary of finance, Julio Bueno, told Reuters he was unaware of the loan, but added that the state is willing to analyse the offer to ease its fiscal strain. Bueno added that the missed debt payments by the state to two foreign banks last month has halted the release of R$1bn (€249.9m/$278.3m) needed to finish a long-delayed metro line.

The subway extension is set to open on August 1, linking the Ipanema and Copacabana beach areas to the western suburb of Barra da Tijuca, site of the Olympic Park. It has been one of the major infrastructure headaches for local organisers. Bueno said: “We had some problems with debt payments that have blocked the release of the loan. But we are negotiating with the government to solve that issue.”

The term of the emergency loan will reportedly involve the three states transferring their stakes in government-led companies to the federal government, which could in turn sell them to private investors as it did during the last states’ debt restructuring in the late 1990s.