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Brazil mulls emergency loan to Rio de Janeiro ahead of Olympics

An aerial view of the 2016 Rio Olympics Park in Rio de Janeiro, Brazil, April 25, 2016. REUTERS/Ricardo Moraes/files
An aerial view of the 2016 Rio Olympics Park in Rio de Janeiro, Brazil, April 25, 2016. REUTERS/Ricardo Moraes/files

By Alonso Soto and Marcela Ayres

BRASILIA (Reuters) - Brazil is considering an emergency loan to the cash-strapped state of Rio de Janeiro as it prepares to host the Olympic Games in less than two months, two senior government officials familiar with the situation told Reuters.

The loan would be backed by the state's participation in local companies and could also be extended to the states of Minas Gerais and Rio Grande do Sul, which are struggling to pay their employees and pensioners as a crippling recession slashes tax revenues.

Although the city of Rio de Janeiro has enough money to complete the infrastructure for the Olympics, a financial crisis in the state threatens to disrupt public services during one of the world's biggest sporting events, which starts on August 5.

Hit hard by the country's recession and drop in crude prices, the oil-producing state faced its worst ever public health crisis this year when unpaid doctors and nurses walked out of hospitals and clinics were left nearly empty, without syringes and alcohol.

The Rio Olympics, the first held in South America, has been marred by political turmoil and an outbreak of the mosquito-borne Zika virus that has been linked to brain malformation in babies in Brazil.

"These states need cash injection. There is no other way," said a member of the government's economic team who asked not to be named to speak freely. "These loans will be backed by states' assets such as banks, utilities, gas and sanitation companies."

(Reporting by Alonso Soto and Marcela Ayres; Editing by Daniel Flynn and Chizu Nomiyama)

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