WEEKLY SELECTION: Brazilians Begin to Pay Bill for Devaluation

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Jan 23 1999 (IPS) - Brazilians have begun to feel the impact of the devaluation of the real, which especially affects public employees, street vendors and formal sector workers who depend on imports, and all those who owe foreign-denominated debts.

Public employees, previously safe from the swings of the market due to their life-long jobs, will suffer the biggest blow, when a reduction of their incomes goes into effect May 1.

The law that raised social security contributions paid by central government employees and pensioners must still be rubber- stamped by the Senate next Tuesday, but its approval is considered a sure thing because the upper house of Congress is controlled by a ruling party alliance.

The bill was approved Wednesday by an overwhelming majority in the Chamber of Deputies. Although it had been voted down four times, the fifth time around fears of an even worse financial meltdown won out.

Public sector retirees, who today enjoy the same incomes as the day they left their jobs, will now pay from 11 to 25 percent of their pensions, depending on how much they earn.

Pensioners who earn less than 600 reals (some 350 dollars at Friday’s exchange rate) a month and those above the age of 70 who earn up to 3,000 reals (1,760 dollars) are to be exempted from the measure – a move that indicated “some sensibility, but not enough,” commented Angelina de Oliveira, a 76-year-old pensioner.

“We spend a lot of money on medicine, in my case an average of 300 reals without any serious illnesses,” said De Oliveira. She added that pensioners with incomes of 2,000 reals, “who don’t earn much,” would now lose 11.3 percent of their incomes.

Public employees, who already pay social security taxes of 11 percent, will now pay an additional nine to 14 percent if they earn more than 1,200 reals (700 dollars).

Adding that to the income tax, public employees who earn 5,000 reals (2,900 dollars) a month will see 35 percent of their incomes returning to state coffers, while similar-earning retirees will pay 34.1 percent of their pensions in taxes.

The tax rise was the solution found by the government to shrink the payroll of its 1.4 million public workers and pensioners and thus reduce the budget deficit, a measure considered indispensable for saving the economy – the world’s eighth largest – from collapse.

In its overhaul of the social security system, the government of Fernando Henrique Cardoso tried to introduce an important chapter of the fiscal adjustment approved in November – a 30 percent reduction of the incomes of public sector employees upon retirement. But the bid failed, because such a reduction would have been unconstitutional.

While government pensioners draw the same incomes they earned during their working years, private sector retirees cannot earn more than 1,200 reals (700 dollars) a month.

Brazilians have begun to suffer the inflationary effects of the more than 40 percent crash of the real. The prices of medicine, most of which is imported or prepared mainly with components purchased abroad, have already risen.

The cost of pasta and bread is expected to rise by at least 15 percent, because three-fourths of all wheat consumed in Brazil is imported. General Motors initially announced an 11.37 percent rise in the prices of its vehicles, which it reduced to 5.5 percent in the face of threats of retaliation by the government.

People who bought goods with financing indexed to the exchange rate saw their debts shoot up by 40 percent in the past few days. The Ministry of Justice said the Consumer Defence Code allowed for the revision of such contracts.

Maria Lucia Rezende in the state of Belo Horizonte was the first to obtain in court the replacement of the dollar by an inflation index for adjustments of her installments on a car.

But the blow suffered by trade in imported goods will have even broader social repercussions. The devaluation of the real means a temporary interruption of shopping trips to Paraguay’s Ciudad del Este. The tens of thousands of people who flock daily to that city on the Paraguayan border feed informal trade in Brazil’s large cities, a sector that provides work to one million people according to estimates by associations of street vendors.

Cross-border trade has changed direction. Now it is Argentinians, Paraguayans and Uruguayans who are shopping in Brazil, encouraged by a real in freefall.