By Rogerio Jelmayer

SÃO PAULO -- Brazilian President Michel Temer plans to veto a bill that would have offered relief to indebted states but would have worsened the central government's already difficult fiscal situation, a spokesman for his chief of staff said Wednesday.

Brazil's Congress last week approved a bill allowing the renegotiation of conditions for states' debts with the federal government. But lawmakers removed some austerity measures that the central government wanted to impose on states accepting the deal.

Mr. Temer plans to veto the part of the bill outlining what states will have to do in return for renegotiating the debt, while signing the part on the new debt terms, according to the finance ministry. The administration will negotiate early next year a proposal that would include some of the austerity measures that were cut, the ministry said.

The ministry couldn't immediately say if states can begin negotiations before the new proposal is approved.

A spokesman for Mr. Temer's chief of staff said earlier Wednesday that the president would veto the entire bill, then the finance ministry clarified that only part of the bill will be vetoed. Brazilian presidents can veto all or parts of bills they don't like, and Congress can vote again to try to override.

Brazil's budget deficit stood at 9.3% of gross domestic product in November, and gross debt was at 70.5% of GDP, according to the most recent data available.

The bill to be vetoed by the president amounted to a giveaway to free-spending states, according to Jankiel Santos, an economist at Haitong Banco de Investimento do Brasil.

"It wouldn't make sense to approve the bill without asking the states for something in return," he said.

Lawmakers approved the measure 296 to 12 to provide debt relief for states including Rio de Janeiro and Rio Grande do Sul, which are struggling to pay salaries and other daily expenses. Many state workers are still waiting to receive their pay for the month of November.

Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com

(END) Dow Jones Newswires

December 28, 2016 13:29 ET (18:29 GMT)

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