Contacts: In Brasília: Denise Marinho (+55 61) 3329-1099 dmarinho@worldbank.org In Washington: Patricia da Camara (+1 202) 473-4019 pdacamara@worldbank.org WASHINGTON, July 31, 2008 – The World Bank Group today approved a two-tranche Development Policy Loan totaling US$1.1 billion for the Rio Grande do Sul Fiscal Sustainability Program. The program will assist the State in achieving a more stable and sustainable fiscal position, improve its debt profile, reduce social security imbalances, and enhance the efficiency of the State’s public sector to improve service provision. The program is designed to protect social gains and strengthen Brazil’s overall fiscal responsibility framework. “This is the culmination of a process that began when the people of Rio Grande embraced the platform of finally addressing the bottlenecks that hold back the State’s growth and competitiveness, as well as its ability to invest and create jobs,” said Yeda Crusius, Governor of Rio Grande do Sul. “The State’s program, supported by this landmark loan, is a huge step towards unleashing Rio Grande’s full development potential.” Rio Grande do Sul suffers from one of the worst fiscal and debt profiles in Brazil, a situation that has gradually worsened during the past decade. It is one of only two states in which the debt is twice as large as the revenue, exceeding the limit set by the Fiscal Responsibility Law. Despite its relatively favorable social and economic position in the country, continuous fiscal deficits and excessive indebtedness have significantly hampered the state’s ability to promote economic growth. This affected social service efficiency and reach, and state quality of life indicators are receding relative to the rest of Brazil. "This support from the World Bank to the Rio Grande do Sul fiscal adjustment process represents much more than a lighter debt burden for this and future governments. It signifies the Bank’s trust in the state’s efforts towards a better future,” said Aod Cunha, Finance Secretary of Rio Grande do Sul. “For us, it represents the state’s ‘investment grade’, a seal of approval that confirms our standing as a state that is good for investment and for living.” The loan will support the state’s efforts by restructuring part of the current public debt and smoothing its payment schedule. The broad-based state program involves a multi-year process of reforms, including rationalization of public expenditures, improving tax collection efficiency, limiting the use of tax expenditures, improving fiscal and debt management systems, reducing social security imbalances, restructuring the state's debt, modernizing public sector management, reorganizing the civil service and improving the provision of public services. “The loan is the result of an impressive partnership between the state government, the Ministry of Finance and the Congress, who recognize that the state needs to get back on a path of fiscal sustainability if it is to grow and improve the quality of life of its people,” said John Briscoe, World Bank Director for Brazil. “The approval of this loan by the World Bank Board is testament to the strong program of fiscal adjustment and public sector reform initiated by the government of Rio Grande do Sul.” “The federal government has been a key partner throughout the process,” said Fernando Blanco, World Bank Co-Task Manager for the Program. “The program strengthens the framework for country fiscal responsibility by reinforcing state ownership of adjustment actions and by ensuring full integration with the central government efforts. It shows how states and the federal government can work together in a shared understanding of the fiscal and debt problems facing sub-national governments in Brazil.“ This US$1.1 billion fixed-spread Development Policy loan from the International Bank for Reconstruction and Development (IBRD) to the State of Rio Grande do Sul is guaranteed by the Federative Republic of Brazil. It will be delivered in two tranches and has a total term of 30 years. Since 1952, the Bank has invested more than US$1 billion in the State of Rio Grande do Sul, not counting the present loan, mostly for transport, energy and rural development projects. - | 
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