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Moratorium on debt repayment

RIO DE JANEIRO: Brazil's state of Minas Gerais on Friday agreed to a debt renegotiation agreement with the federal government that will prevent the state from defaulting on $108 million in Eurobonds next week, a spokeswoman for the state said.

Gov. Itamar Franco locked horns with Brazilian President Fernando Henrique Cardoso when he declared a moratorium last year on debt owed the central government, fanning a crisis in investor confidence that forced Brazil to devalue its long-steady currency, the real.

The widely expected renegotiation agreement, announced Friday, transfers responsibility for the maturing Eurobonds to the central government as part of an overall renegotiation of the $12 billion that Minas owes to federal coffers.

News of a possible default in Brazil's third-wealthiest state, which surfaced in recent days, met a muted response from local and international markets, which analysts said was due to progress made in Brazil's fiscal reform drive and its quick rebound from last year's economic turmoil.

If Franco himself a former president of Brazil had snubbed the debt deal, they said, Cardoso would have simply let the state default on its debt as the move would probably have no impact on Brazil's sovereign debt rating.-Reuters