Amid the worst political crisis in decades, Brazil's federalgovernment also faces a spiraling state debt crisis that could costit as much as US$89 billion in lost revenue.

Brazilian states, hit by a two-year recession that has depressedtax revenues, are seeking to apply simple rather than compoundinterest on debt owed to the federal government. The change couldcost the Treasury 313 billion reais, according to Finance Ministrycalculations.

Brazil'sSupreme Court ruled last week in favor of Santa Catarina state,which had requested the change. The decision, albeit an injunctionissued by the court before its decision on the case's merit, couldopen a precedent allowing other states to demand the sametreatment, Finance minister Nelson Barbosa warned on Apr. 8.