Waiting for payment
SAO PAULO — Sixteen-year-old Andre Oliveira da Paz worked in a mechanic’s shop and was the main breadwinner in his family when he and three friends were shot and killed by Sao Paulo police at a traffic stop. That was 1992. His mother, Vera Alice de Oliveira, sued the state for damages and won. But justice in Brazil is painfully slow: Her case wasn’t heard until 1997, and the money she eventually won is still, 17 years after Andre’s death, nowhere to be seen. With interest and adjustments for inflation, Oliveira is owed about $50,000.
And she is not alone. In fact, she is very, very far from alone. Across Brazil, state and local governments owe their citizens about $50 billion in what are called “precatorios alimentares,” court-issued IOUs that the state or municipality is supposed to make good on by the end of the following calendar year. Some governments are up to date, but Sao Paulo state is among the worst debtors, owing an estimated $8 billion. It is currently paying off precatorios that came due in 1998.
As a comparison, New York City typically pays within 60 days of a court ruling, according to a spokesperson for the city’s law department.
There are several kinds of precatorios: Precatorios alimentares are issued in specific kinds of cases, including wrongful imprisonment, injury or death suits (like the Oliveira case), or, more commonly, orders of compensation for unpaid or underpaid pensions. Evaristo Marques Pinto, a retired public prosecutor from the city of Sao Jose do Rio Preto, is typical of the latter kind of case: In 2001, his pension was erroneously lowered by $1,500 a month. He won in 2004, and is now owed about $42,000 with interest. “I worked for a boss that is now robbing me,” he said in a telephone interview.
Although cases like Oliveira’s are more dramatic than pension disputes, in one poignant way, the retirees’ cases are more troubling. “We end up dying without seeing the money,” Marques said.
Ricardo Luiz Marcal Ferreira is an attorney and president of MADECA, an association of Sao Paulo lawyers that seeks a resolution of the precatorio problem. Brazil “has pretensions of being a part of the developed world,” he said. “It’s inconceivable that we would have a situation where judicial decisions are not complied with, where the injured citizen has no recourse.”
But inconceivable things happen all the time in Brazil, and when they do, ever more inconceivable things tend to follow. A proposed constitutional amendment known as PEC-12 would allow states and municipalities to cap the amount they pay out each year for precatorios. For states, it’s a maximum of 2 percent of their budget. The Order of Brazilian Attorneys has estimated that at that rate some states would take decades to pay off their debts and that the state of Espirito Santo, one of the worst debtors, would take over a century.
PEC-12, which has passed the Brazilian Senate and is now in the lower house, also allows governments to change the order in which debts are paid. Governments could use one chunk of the allocated money to pay the smallest precatorios, regardless of what year they were issued. Holders of the remaining, higher-value precatorios could enter a reverse auction, in which they offer to accept a partial payment. Those offering the state or city the greatest savings “win.”
Critics, of which there are many, mock the amendment by saying it would legalize government “calote” (ka-LOW-chee) a colorful Portuguese word meaning non-payment of debt. Marcal calls it an “insane solution,” and said he would like to see federal intervention lead to a responsible plan that would pay off all debts in 10 years or less. (The federal government is currently up to date on its own precatorio payments.)
But the senate passed the proposal unanimously, and many governors and mayors support it as well, seeing it as a way to protect their governments against potentially crippling debts for which they blame their predecessors. Sao Paulo Governor Jose Serra — who polls show to be the leading pre-candidate for next year’s presidential elections — has made statements in the past implying he supports the amendment, but despite repeated requests from GlobalPost, his press office did not respond to questions about his position or the state’s precatorio debt.
Politicians, pensioners and victims like Vera Alice de Oliveira are not the only people with a stake in the proposed amendment. A sophisticated market has developed for investors to buy precatorios from citizens at a fraction of their current worth, sometimes as little as 10 percent or 20 percent. When — and if — the government pays, they cash in. You can see the process at work in the 12th floor of a nondescript high-rise building in the center of Sao Paulo, where records of 42,000 unpaid state and city cases are overseen by five full-time judges. The lawsuits are matters of public record, so precatorio-buying companies send workers armed with digital cameras to request and snap photos of the files; they then contact the precatorio holders to make an offer.
Sometimes, the companies have other plans in mind for the precatorios they buy. In one random unpaid case picked from the shelves, a group of police widows had sued the state in the 1990s when they hadn’t received pensions they were owed. Documents inserted in the file showed that several widows had since sold their precatorios to a petrochemical company in Rio de Janeiro. According to one of the judges, companies with unpaid tax bills to the state of Sao Paulo buy precatorios at cut rates and attempt to turn them in to the state for a tax credit for the full value, thus saving a tidy sum.
Both Marques and Oliveira have been offered cash for their precatorios. In Marques’ case, two different companies called to offer him around $10,000 — about a quarter of what he is owed. Oliveira, whose precatorio is older and thus closer to being paid (under the current chronological payment system), was offered about half.
They refused. “I don’t accept these things,” Marques said. “I think we need to fight more.”
But he has the advantage of being financially secure. That’s not the case with the 51-year-old Oliveira, a former housecleaner and babysitter who, after her son was killed, moved with her other three children into her sister’s modest home in the city’s working-class Capao Redondo neighborhood. Oliveira almost accepted an offer for her precatorio when a grandson was born in 2006 with a cleft lip and palate and required surgery. These days, she herself has been putting off a needed operation. And just last Monday, she was laid off from her latest job in a candy factory. But she still said she would hold out for the full payment.
Meanwhile, as PEC-12 advances, Austin Ratings, a Brazilian credit classification company, recently threatened to lower Sao Paulo state’s credit rating if the constitutional amendment is passed. That caused Jose Serra to lash out against the company in the local press.
But credit ratings and constitutional amendments seem a world away from the crowded home where Oliveira lives, on a run-down block where neighborhood dogs play under jerry-rigged power lines.
“The guys with ties never go to jail,” she said. “They are the worst thieves. Meanwhile, honest people lose their children because of stupidity.
“Sometimes I’m embarrassed to say I’m Brazilian.”
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