BRAZIL: Pensions Reform, Lula's Top Economic and Social Challenge

Mario Osava

RIO DE JANEIRO, Dec 31 (IPS) - The first priority of Brazilian president-elect Luiz Inácio ''Lula'' da Silva, who takes office Wednesday, will be to reform the pensions system in order to slash the fiscal deficit and remove one of the main sources of inequality in the country.

Modifying the social security system is a political challenge as enormous, in operational and economic terms, as eradicating hunger among the 54 million people living below the poverty line in this country of 170 million -- the chief social goal announced by Lula.

Lula's leftist Workers' Party (PT), which is about to become the governing party for the next four years, is now advocating an overhauling of the social security system, after standing in the way of similar initiatives under outgoing President Fernando Henrique Cardoso, members of the outgoing cabinet complained.

The stiff resistance put up by trade unions and workers -- especially public employees -- and politicians on the left allowed the opposition, although it formed only a small minority, to block amendments that would have raised the age of retirement and brought privileged public sector pensions into line with private sector ones.

A broad reform of the social security system is seen as indispensable to balancing the government's accounts, since pensions constitute the second largest factor in the public deficit, only exceeded by the country's debt servicing payments.

Incoming social security minister Ricardo Berzoini announced that he would promote a radical change: the unification of the rules governing pensions, which would put an end to the two parallel systems now in place.

Retired private sector workers currently earn a maximum pension of 1,561 reais (445 dollars), while public employees earn the same as their colleagues who are still working, and sometimes even more, because some are promoted when it comes time to retire.

Two-thirds of the private sector's 20 million retirees draw pensions equivalent to the minimum monthly salary of 200 reais (57 dollars). The drastic reduction in their incomes forces many to continue working after retirement, often in the informal sector of the economy.

On the other hand, retired national, state and municipal government employees receive monthly payments eight times greater on average than private sector pensioners.

That imbalance means the public sector accounts for more than three-quarters of the social security deficit, estimated by outgoing minister José Cechin at 70 billion reais (20 billion dollars) this year.

That means a few million retired civil servants cost three times more, in terms of the public deficit, than 20 million pensioners of private companies or self-employed workers.

The long-standing inequality of the system was not questioned until it was aggravated over the past two decades by the lowering of the ceiling set on private pensions. But now it is seen as intolerable, due to the imbalance in the public accounts.

Lula's government will have to persuade the PT's own grassroots bases, of which the unions of public employees form an important part, as well as the opposition in parliament, to push through the reform of the pensions system.

Incoming minister Berzoini, a member of the PT and a former ex-president of the Union of Bank Employees of Sao Paulo, believes it will be possible to convince the public, even those who will be affected, of the need to reform the system.

''There will be no reliable social security coverage'' for anyone if the country goes bankrupt, he argued.

His proposal, which is still being finetuned, is to create a unified social security system, with a ceiling similar to that set for the private sector. Those who want to increase their income after retirement would have to pay into pension funds.

But the changes would not hurt public employees who are already retired, whose ''acquired rights'' would continue to be respected.

Under a transition system that would govern civil servants who are still active, the current system would apply to the period worked up to the time of the approval of the new unified regime.

All signs indicate that it will not be easy to win parliamentary approval of the new system, since it will require passage of a constitutional amendment, which needs a 60 percent majority of senators and deputies, in two votes in each house of Congress.

The new governing coalition of the PT and smaller parties will hold only 240 seats out of a total of 513 in the Chamber of Deputies and 40 percent of the 81-member Senate, said the political coordinator of the future government, José Dirceu.

But Lula hopes the search for a ''social pact'' between all sectors of the country will contribute to the ratification of controversial initiatives like the pensions reform.

To that end, a Council of Economic and Social Development is being set up, which would consist of representatives of the government, business, trade unions, social movements, academia and non-governmental organisations.

Winning consensus on the changes to the social security system is the first task to be faced by the secretary of the Council of Economic and Social Development, Tarso Genro, another PT leader.

Genro served as mayor of Porto Alegre, the southern Brazilian city that has been governed by the PT for 14 years with intense participation of local residents, and has become the symbol of the ''PT way of governing.'' (END/2002)