• by IPS Correspondents (rio de janeiro)
• Friday, December 30, 1994
• Inter Press Service

RIO DE JANEIRO, Dic 30 (IPS) - The Brazilian government took over the country's two largest provincial banksthe Sao Paulo State Bank (BANESPA) and the Rio de Janeiro State Bank (BANERJ)the Central Bank announced on Friday.

Central Bank president Pedro Malan, who on Jan. 1 will become finance minister in Fernando Henrique Cardoso's new government, denied the measure is a step towards similar interventions in additional provincial banks.

"These are concrete, particular cases. BANESPA could not close its accounts yesterday because it was one billion dollars short, and BANERJ lacked 500 million. Since the Central Bank did not have the money, it was necessary to intervene," said Malan.

Rather than a last minute measure by incumbent President Itamar Franco's administration, the take-overs were regarded as one of the first decisions of Cardoso's new government, as Franco's economic team will remain virtually unchanged under the new head of state.

The fact the move was made on Friday, the last day Sao Paulo and Rio de Janeiro governors Luis Antonio Fleury and Nilo Batista will be in office, means the political wear and tear will fall on the shoulders of the governors responsible for the banks' precarious financial situation.

For many years, state banks have caused headaches for those responsible for guiding national economic policy, as they have frequently been used to cover up the cash problems of local governments.

A succession of weak national governments permitted the situation to reach the point where state banks owe the central government some 20 billion dollars.

Of that total, 7.5 billion corresponds to BANESPA and 2.5 billion to BANERJ.

According to Malan, the intervention - "a special temporary administration regime" - will last a year, but is not "a step towards the privatisation of provincial banks.

"The two banks have been a constant worry for the government. The Central Bank will now name a council of directors to administer them for a year - or less if their finances are put in order before that time."

Finance minister Ciro Gomes denied that the banks' problems are a reflection of Mexico's economic crisis. "They are a consequence of internal difficulties in the intervened banks, common in financial markets. And I stress that there will be no 'domino effect' in other institutions."

An advisor to Rio de Janeiro's governor-elect Marcello Alencar said the decision did not surprise the future leader because "the take-over was the only solution for the bank's problems."

Both Alencar and governor-elect Mario Covas of Sao Paulo are from Cardoso's Social Democratic Party, and both planned to focus on the normalisation of the accounts of the two state banks as one of their most serious challenges.

© Inter Press Service (2014) — All Rights Reserved. Original source: Inter Press Service

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