Brazilian President Jair Bolsonaro said on Monday he was preparing a proposal for a constitutional amendment to handle payment of the government's court-ordered debts that would be paid from the proceeds of privatizations.
Bolsonaro, who revealed the proposal during a visit to Congress to unveil a restructure of Brazil's welfare program, did not disclose details on how payments of the government's legal debts would be changed.
However, officials said the largest debts would be parceled over time to avoid a dramatic impact on the budget deficit.
Last week, Economy Minister Paulo Guedes said court-ordered judiciary payments in 2022 could total 90 billion reais ($17 billion), a figure that could hit next year's budget like a "meteor."
The payments are outlays the government must make - often comprising compensation, benefits and tax refunds - following legal defeats in court. They have surged dramatically from 40-50 billion reais a year when Bolsonaro took power in 2019.
The fiscal impact of mounting government legal debts has worried investors and weakened the real against the dollar in recent days.
Citizenship Minister Joao Roma said the proposed amendment will set up a fund based on the privatization of state companies that can be used to pay the legal debts. A constitutional amendment is needed as the payment of legal debts is ordained in the constitution.
Roma, whose portfolio includes social security programs, said the privatization fund will also be used in part to fund the restructured welfare program for the poor.
The proposal will increase monthly benefits for millions of Brazil's poorest families and change the name of the program from 'Bolsa Familia' to 'Auxilio Brasil'.
Bolsonaro said the Auxilio Brasil monthly welfare payments will increase by at least 50%, raising the minimum handout to 300 reais ($57) from the current 190 reais starting in November.
Roma said the program would be expanded to cover 16 million people from 14.6 million at present. Initially, the government had estimated that the restructured welfare program would cost 18 billion reais.
He told a news conference the new welfare program will not exceed the country's constitutionally mandated spending ceiling.
"We want to increase the average payment, but we have to act with fiscal responsibility to avoid an imbalance in government finances," he said.
($1 = 5.23 reais)
(Reporting by Marcela Ayres; writing by Carolina Mandl and Anthony Boadle; editing by Richard Pullin)
