UPDATE 1-Brazil's top court softens on fiscal woes as govt eyes 40 bln reais 2022 bill

(Adds proposed figure on 2022 liabilities)

BRASILIA, Aug 26 (Reuters) – The chief justice of Brazil’s Supreme Court said on Thursday he supported allowing the government to stagger its payments of court-ordered debts in order to avoid breaking a constitutional spending cap in an election year.

A source with knowledge of the government’s plans said it is negotiating a plan to cut the nearly 90 billion reais ($17.11 billion) of court-ordered payments due next year by almost 50 billion reais. The rest could be parceled over subsequent years, said the source, who was not authorized to speak publicly.

Government officials and congressional leaders have engaged in talks with the Supreme Court over a way to avoid breaking the spending cap and contravening a fiscal responsibility law. Concerns over the liabilities have weakened Brazil’s currency in recent weeks, with investors spooked by the prospect of a major blow to the budget next year.

Chief Justice Luiz Fux, addressing investors in an online forum, said the proposal appeared acceptable to the government but he still had to discuss it with his colleagues on the court.

The government is also working with Congress on a proposed constitutional amendment giving it more latitude in handling the payments. Relations are increasingly strained between the government of President Jair Bolsonaro and the Supreme Court.

Bolsonaro, a far-right former army captain, has been sowing doubts about next year’s election, claiming an electronic ballot system is vulnerable to fraud and lambasting the justices responsible for safeguarding Brazil’s democratic process.

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