Brazil Vows Pension Reform by End of Year

08/14/2017 - 12h25

Brazil finance minister Henrique Meirelles has predicted that pension reform will be passed by the end of this year in spite of a political crisis that has weakened the government of Latin America's biggest economy.

He also maintained that the government of centre-right president Michel Temer, who last week won a congressional vote and succeeded in blocking an attempt to try him for corruption, would tackle other tough reforms too, such as an overhaul of the labyrinthine tax system.

"We expect that group of reforms, particularly the social security reform, to be concluded by this year-end," Mr Meirelles told the Financial Times in an interview. "Which means [not only] social security, the most important one, but also tax reform, which is beginning to now be formulated."

The reform of Brazil's pension system, which allows public servants to retire as early as in their mid-50s, is a vital plank of Mr Temer's efforts to rein in Brazil's runaway budget deficit and is being watched by markets.

The president was on track to pass the pension reform in Brazil's unruly Congress when his plans were derailed by a corruption scandal in May. He was taped allegedly discussing bribes with a businessman, Joesley Batista, the former chairman of JBS, the world's largest meatpacker.

The scandal wiped out the president's chances of securing the three-fifths majority in the lower house of Congress, or 308 seats, needed to pass the constitutional amendment to implement the pension reform.

But Mr Temer's victory in Congress last week was strong enough to revive hopes that the reform programme could pass. The president secured 263 votes, while 227 members wanted him to face the corruption charges brought by Brazil's chief prosecutor, Rodrigo Janot, in the Supreme Court.

Mr Temer's Brazilian Democratic Movement party, or PMDB, is the largest in Congress but it relies on the support of numerous smaller parties to form a majority.

"After the vote for the rejection of the accusation from Janot the number was very good from the government's perspective in terms of being able to build a foundation from there again," said Thiago de Aragão, a Brasília-based political consultant with Arko Advice.

Mr Meirelles said he expected the government to pick up where it left off on pension reform. Congressional leaders have indicated they might put it to the vote again next month.

Before the scandal, the government had negotiated a more gradual transition period for the extension of the minimum retirement age for men to 65 years and women to 63. He said he did not expect much further dilution of the proposal.

Many of those who voted for Mr Temer's trial, particularly those in the pro-business PSDB party, Congress's third-largest party, support pension reform, analysts say. The PSDB is already thinking ahead to next year's elections and wants to see Mr Temer do some of the heavy lifting on reforms this year.

This - in the case of a PSDB victory - would make it easier for the incoming government.

"For the PSDB, there is a major interest in having the pension reform approved or at least part of it," said Mr de Aragão. "Because whatever you approve in this administration is something that does not need to be approved in an eventual PSDB administration next year."

Other analysts questioned, however, if Mr Temer can raise the support needed to pass such an unpopular reform. The president still faces the possibility of being indicted by Mr Janot on other charges, which would necessitate other congressional votes and further exhaust his political capital.

It is also unclear whether he is able to distribute enough favours - in the form of government jobs or budget allocations - to secure support for a pension reform. Indeed, many congressmen mentioned their opposition to pension reform during the vote last week.

Copyright The Financial Times Limited 2017