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Brazil pensions: Lack-of-business, as usual

In February, the Brazilian government sent the army into the violent and bankrupt city of Rio de Janeiro. 

That decision put paid to the desperately needed and desperately unpopular pension reform because the country’s constitution does not allow for constitutional amendments when federal armed forces are being deployed.

Conspiracy theorists immediately suggested that the army was moved in on the day (February 19) that had been set as the deadline for the pensions vote to mask the government’s failure to muster support. To be fair, the administration admitted that it wouldn’t have got the votes anyway. 

The markets did not respond. Despite the urgency required to stem the fiscal deficit, pensions reform was already widely seen as dead and “the next president’s problem”. Notably, shares in Eletrobras rose. That was because the market now sees that the government’s plan to sell its stake becomes more likely before the election. 


The R$12.2 billion ($3.76 billion) the government eyes from the sale is even more necessary to plug the public finances. The sale would not only be good for the government – and Eletrobras – but could also signal the way forward for the next administration to cut debt and boost investment through similar sales of a long list of government-owned assets.

Predictably, the optimism lasted about 24 hours before sources in the ministry of finance began to cast doubt on the completion of the sale process this year, which, were it to come to market, would be coming right on top of the presidential election or immediately after. 

It gets worse. Other elements of the 15-point plan that the ministry of finance rushed out to boost market confidence in the face of the death of pensions reform also began to look doubtful. For example, Reuters reported that the proposal to eliminate payroll tax breaks was unlikely as industries would oppose it and put pressure on lawmakers in the run up to the election.

Bad news, then good news, then effectively no news. At some point Brazil needs to move forward, not in circles. 

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