Brazil Shelves Vital Pensions Reform

02/23/2018 - 12h29

Brazil has shelved plans to overhaul its pension system, a measure economists and investors see as key to long-term fiscal prosperity.

The first vote on reforms to a system the World Bank expects to consume the entire federal budget by 2030 was set to take place in the lower house of Congress this week.

But Friday's move by President Michel Temer to hand control of Rio de Janeiro's security to the military to curb a violent crime wave has in effect blocked its passage as the country's constitution cannot be amended while a federal intervention is in force.

"Brazil is witness that we were and are conscious that the reform is necessary. Now the security issue has assumed such an explosive character that it has become necessary to take exceptional measures, and the side effect right now is suspension of the procedure of the pension reform," Carlos Marun, political affairs minister, said on Monday.

But he also admitted that "we don't have enough votes" to push through the reform.

His comments came after Senate president Eunício Oliveira confirmed that the first military intervention since Brazil's return to democracy 30 years ago meant that the pensions overhaul could not proceed.

Mr Temer has made pension reform the centrepiece of his agenda, despite opinion polls showing him to be one of the most unpopular presidents in Brazil's recent history.

He has been touting the country's recovery from a tough recession and the stock market has been hitting record highs. But government efforts to put pressure on lawmakers, alongside a public-relations campaign praising the benefits of the reform, proved futile.

A year ago, Mr Temer looked close to passing a comprehensive pensions overhaul. But in May he was accused of graft after a businessman recorded him allegedly discussing bribes, and was forced to fight two congressional votes on whether he should be tried for corruption, burning much of his political capital and delaying the reform.

Now, as they prepare to fight for their seats at October's general election, legislators want to avoid an unpopular reform of a generous system in which workers can retire as early as their mid-fifties.

Sérgio Canuto, a union member protesting at São Paulo's airport said on Monday: "This not a pension reform, it is the dismantling of social security."

A senior Brazilian official on Monday acknowledged that "we erred in the way we communicated the benefits of this reform, and this will cost the country dearly. The life of the next president will be very tough."

Copyright The Financial Times Limited 2018