STF Justice Validates São Paulo’s Debt Rollover, Blocks Federal Sanctions

Overview

• In a preliminary injunction, André Mendonça recognized São Paulo’s renegotiation under Propag and payments already made, authorizing a judicial deposit of R$ 911.6 million.
• The ruling bars the federal government from listing the state as delinquent, imposing credit restrictions, or charging under prior contracts.
• Mendonça wrote that the Union created a legitimate expectation by demanding and receiving required steps, so refusing to recognize the deal would be contradictory.
• São Paulo says it met Propag prerequisites, including Alesp approval on December 10, a R$ 17.8 million education credit, and a R$ 16.8 million payment to the Federative Equalization Fund, which the Treasury contests.
• The order addresses immediate fiscal risk from dual charging regimes; reports cite a R$ 912 million interest gap on the first installment, paid on January 16 for R$ 854 million, with plenary review still pending.