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Brazilian Senate Passes Pension Reform

Posted on the 15 November 2019 by Angelicolaw @AngelicoLaw
Brazilian Senate Passes Pension Reform

Brazilian President Jair Bolsonaro celebrated as his proposed pension reform was approved by the Senate last month. The reform is a cornerstone of the president's economic recovery strategy, and its passing marks an important milestone in Brazil's recent economic history.

Brazilian pensions are some of the most generous in the world, and many economists see its reform as essential to stimulating sustainable economic growth.

Bolsonaro tweeted, "Congratulations Brazilian people! This victory, which paves the way for our country to finally take off, is yours! Brazil is ours! GREAT DAY!"

His enthusiasm is apt as pension reform has been an issue that many former presidents had tried to tackle but failed. The last three decades have seen pension reform hotly debated in the congressional arena, risking failure to reach consensus because of polarization. Yet this time, the reform bill passed with significant approval - a vote of 60-19.

Brazilian stocks reached an all-time high after the result was announced. Brazil's investment-grade credit rating has taken a hit due to high social security spending that has led to a fiscal deficit. The reduction of social security payouts will help to bolster Brazilian credit.

Tony Volpon, chief economist for Brazil at UBS, commented that, "The [stock] market rallied a lot today, in part because of this passage. It looks like local investors who have been buying the market in the face of foreign selling are beginning to win the argument." Brazil's benchmark Bovespa stock index climbed 1.1% to close at 107,197 points. The real (BRL$) climbed more than 1%, reaching 4.06 per dollar - the first time it had seen that figure in over two weeks.

In July of this year, Congress' lower house passed the reform bill on to the Senate, allowing the Central Bank to cut interest rates. If the bill had not passed the Senate, the Central Bank warned that local markets would have faced higher rates.

The reform is good news for Brazil's sluggish economic growth. At the start of the year, many economists projected a 2% growth in 2019; however, the economy has stalled at 1% growth, lower than the last two years.

Initially, the pension reform bill was projected to save 1.237 trillion reais over the next ten years. That value has since been reduced to about 800 billion reais, but it is still a significant savings.

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