BRASILIA, (Reuters) – Brazilian President Jair Bolsonaro delivered his proposed pension overhaul to Congress yesterday, a plan to save over 1 trillion reais ($270 billion) in a decade that raised doubts about whether lawmakers would pass a package of that scale.
The social security bill is the cornerstone of the new president’s effort to close what most economists call an unsustainable public deficit and boost a weak economic recovery.
“The creation of a new pension system is fundamental to balance our country’s accounts so the system does not collapse, as already happened in other countries and in some Brazilian states,” Bolsonaro said in an address to the nation.
The government pledged to present changes soon for military pensions that would increase the savings, a delay that also raised a red flag among some legislators.
“A reform plan that does not include the military will not move ahead in Congress,” Senator Ciro Nogueira, head of the center-right Progressive Party, told reporters.
The reform proposal’s author, Economy Minister Paulo Guedes, however, said he was “pretty optimistic” a “mature” Brazilian Congress would approve the bill without too many changes because they realized it was needed for Brazil to grow.
Bolsonaro’s savings target of 1.072 trillion reais in a decade is more ambitious than the roughly 600 billion reais of savings proposed by his predecessor Michel Temer, who gave up on the idea amid public backlash and graft scandals.
Brazilian market reaction to the proposal was mixed, with the stock market and the real eventually closing lower. Financial analysts and investors mostly welcomed the proposals, but few expected swift approval.
Delay and dilution could sour investor confidence and dampen any positive economic impact, analysts warned.
“One thing is a solid, well thought out and crafted reform proposal, the other is what will ultimately emanate from Congress. The risk is that the initial proposal will be significantly watered down by Congress,” wrote Alberto Ramos, head of Latin American economic research at Goldman Sachs.
Bolsonaro’s opponents on the left slammed the plan, saying it would hurt poor Brazilians. Even some of the president’s allies questioned the delay on military pensions.
Final approval is unlikely until the fourth quarter, Ramos told clients in a note, far later than the government’s target of June or sooner. Rogerio Marinho, the Economy Ministry’s secretary of social security and labor, also told reporters approval could be in the second half of the year.
Brazil’s social security shortfall widened 7 percent last year to 195.2 billion reais, the biggest factor by far in Brazil’s budget deficit. The pension deficit including private- and public-sector employees and military personnel is expected to top 300 billion reais this year, more than 4 percent of gross domestic product.
The Bovespa stock index fell 1.1 percent on Wednesday, the real weakened 0.3 percent and interest rates futures a year out rose 4 basis points to 6.42 percent .