Circular No. 175 — Internal Debt of States and Municipalities — Regulation of Loans to States and Municipalities

CIRCULAR NO. 000175

To
Financial Institutions

The CENTRAL BANK OF BRAZIL, in accordance with the deliberation of the National Monetary Council, in session on this date, taking into account the guidelines embodied in Resolutions No. 58, of October 23, 1968; No. 79, of October 21, 1970; No. 92, of November 27, 1970; and No. 53, of November 27, 1971, of the Federal Senate; and Resolutions No. 101, of November 8, 1968, and No. 171, of January 22, 1971, of this Central Bank, regarding the internal debt of States and Municipalities, and their respective foundations or entities of indirect administration, when maintained by budgetary appropriations transferred by the Union, States, and Municipalities and representing more than 50% of their respective revenues, resolves:

I - To determine that, prior to the granting of loans of any nature to States, Municipalities, foundations, or entities of indirect administration, financial institutions must certify compliance by those entities with the specific instructions governing state or municipal indebtedness:

a) in the case of credit operations by advance of budgetary revenue, as provided for in Article 67 of the Federal Constitution, observance of the conditions established in item I, subsections "a" to "d", of Resolution No. 171, of January 22, 1971, of this Bank;

b) regarding loans not covered by the previous subsection, it must be proven that, with the intended operation, added to credit operations of any nature "outstanding" and excluding those mentioned in the previous subsection, the amount of obligations existing on October 29, 1968, which is considered the permitted debt limit, in view of Resolution No. 58/68, reinvigorated by Resolution No. 79/70, of the Federal Senate, will not be exceeded. In the event of an increase, specific authorization for the extension of that limit, granted by the Federal Senate or by the Most Excellent Lord President of the Republic due to the faculty provided for in § 1 of Article 1 of Resolution No. 58/68 of the Federal Senate, must be presented.

c) any proof regarding state or municipal indebtedness will be waived when the financing is intended exclusively for the acquisition of agricultural machinery, equipment, and implements, or road machinery and equipment, provided that such circumstance is stated in the respective credit instrument;

d) within a maximum period of 5 days, counted from the date of approval of the operation, the financial institution carrying it out must send to the Central Bank of Brazil - Public Debt Management (GEDIP) - a copy of the credit contract signed, in accordance with item II of Resolution No. 171 of the Central Bank.

e) the proofs referred to in this item must accompany the signed credit instrument, at the time of its remittance to this Bank.

II - Requests for authorization, in accordance with item III of Resolution No. 171/71 of the Central Bank, which must be submitted to the National Monetary Council for the granting of guarantees or sureties on titles or contracts of any nature, the responsibility of which lies with States, Municipalities, and their foundations or entities of indirect administration, must be accompanied by the documents necessary to verify the indebtedness position of the Entity. In the event of an increase in the internal debt limit mentioned in subsection "b" of item I, due to the intended operation, it is indispensable to present simultaneously the technical justification referred to in Resolution No. 58/68 of the Federal Senate.

III - It is prohibited for financial institutions to accept, in any modality of loan, financing, or refinancing, whether as principal or accessory guarantee of the operations they carry out, promissory notes, bills of lading, bills of exchange, or other titles of the kind, issued, accepted, or guaranteed by States, Municipalities, and their respective foundations and entities of indirect administration, corresponding to commitments assumed with suppliers, service providers, or construction contractors, noting that:

a) the restriction provided for in this item will not apply to titles that States, Municipalities, and their respective foundations and entities of indirect administration have, as proven, issued, accepted, or guaranteed, based on authorization from the Federal Senate or the Most Excellent Lord President of the Republic, in accordance with §§ 1 and 2 of Article 4 of Resolution No. 92/70 of the Federal Senate.

b) titles referring to the acquisition of agricultural machinery, equipment, and implements, or road machinery and equipment are also excluded from the restriction in question.

IV - Non-observance of the established norms will subject financial institutions and their administrators to the penalties provided for in Law No. 4.595, of December 31, 1964.

Brasília-DF, March 23, 1972

Ernane Galvêas
President