Brazil approves bankruptcy reform

A major reform of Brazil's bankruptcy laws has been approved by the country's Congress, in a move which it is hoped will cut the cost of borrowing.

The bill, proposed in 1993, has finally been approved by the leadership of President Luiz Inacio Lula da Silva. The old law, dating from 1945, gave priority first to workers, second to tax revenue and finally to creditors. The new legislation changes this, giving priority to creditors and limiting payments to workers. The new regulations will limit payments to workers to 150 times the minimum monthly salary, which is currently $94. The law also makes it more difficult for a company to declare bankruptcy. However, when a firm is declared bankrupt it will gain protection from creditors for 180 days while a recovery plan is worked out.

The proposals were opposed in the past by leftist parties, including Mr Lula's Worker Party. They considered that they undermined workers' rights. But President Lula became a defender of the reforms, arguing that the country's bank lending margins were among the highest in the world and were damaging the economy. According to Andreas Adriano of Latin Trade Magazine, the new bankruptcy law will help in reducing the spread - difference between the interest rates of the banks and federal bonds. Nevertheless, Mr Adriano said to reduce the basic interest rate the Central Bank needs to change its policy, focusing not only on inflation but also on economic growth.