July 4, 2020, 13:05

Brazil’s Pension Reform Plan to Save $240 Bln, Gov’t Says Amid Stiff Opposition

Brazil’s Pension Reform Plan to Save $240 Bln, Gov’t Says Amid Stiff Opposition

Brazilian lawmakers are gradually advancing the pension reform plan proposed by President Jair Bolsonaro, which, despite being highly unpopular, could help fix the nation’s public finances and boost its investment appeal.

Kristian Rouz – The Brazilian government’s proposals to raise the retirement age, increase worker’s pension contributions, and cut retirement benefits will save the federal budget up to 900 bln reals ($240 bln), a top government official says. The statement came as several lawmakers in Brazil’s Congress voiced opposition to the highly unpopular bill after the recent vote.

According to Brazil’s Labour and Pensions Secretary Rogerio Marinho, the projected fiscal savings would materialise over the coming 10 years, and will greatly help the cabinet of President Jair Bolsonaro improve the health of the nation’s public finances.

Marinho says he believes the lower house of Congress will hold the second and final vote as soon as in early August – after having approved the bill in the first vote earlier this month. The Senate could pass the bill in September.

Meanwhile, Brazilian lawmakers say the final vote could be delayed due to the mounting opposition to the proposed legislation, as some centrist and centre-left lawmakers say pension cuts could increase poverty and undermine the purchasing power of many Brazilian households. Brazil is still grappling with an acute poverty problem, which remains widespread across its favela population.

“What we can’t risk is going to a second round and losing the vote,” House Speaker Rodrigo Maia said.

Maia says Congress is still negotiating over the amendments to the bill, which could make its negative consequences easier for Brazilian households to withstand.

Previously, the government believed the pension reform would save it up to 1 trln reals over the next 10 years, but the most recent downgraded estimate takes into account some of the proposed amendments – and the final version of the bill could be even softer to prevent a spike in poverty.

​Financial markets, however, welcomed the recent passage of the bill in its first vote. Brazilian stocks hit record highs earlier this month, but now that the final vote could be delayed, Brazil’s Bovespa index dropped 1.2 percent Friday, posting its second consecutive decline.

Meanwhile, some policymakers are seeking to scrap the bill altogether – but the government warns that without the painful reform, Brazil’s budget deficit gap could undermine its international credit rating and hurt the investment climate. This would, in turn, reflect negatively on economic growth – which stood at -0.2 percent in the first quarter of this year.

Either way, proponents of the bill say the quality of life in Brazil is expected to decline, while poverty would inevitably rise in the near-term. The question is, whether President Bolsonaro will be able to jump-start economic growth, create new jobs, and increase wages to offset the negative effects of his proposed austerity package.

Some experts doubt he will.

​Economists say Bolsonaro has a lot of work to do even after his proposed pension plan passes Congress. Brazil needs new investment in its manufacturing and mining industries, while more affordable credit could boost the purchasing power of its consumers. Additionally, rampant corruption has hindered Brazil’s economic growth and diversification for decades, and – along with elevated income inequality – must be eradicated.

​For his part, Brazilian Economy Minister Paulo Guedes says saving below 900 bln reals would not be enough to bring any substantial improvement to the nation’s fiscal health. He believes further attempts to soften the bill would result in ‘aborted’ reform – and the government will have to reform its pension system again in 5-6 years.

Brazilian lawmakers continue to debate the bill ahead of the congressional recess later this month.

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