ECONOMY/POLITICS-BRAZIL: Minimum Wage Raise, Lula’s First Pitfall

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 18 2002 (IPS) - Adopting an 11-dollar increase in Brazil’s minimum monthly salary, one of the lowest in the world, will be the first pitfall facing president-elect Luiz Inácio Lula da Silva when he takes office on Jan 1.

The measure, which will only increase the minimum wage from 200 to 240 reais (66 dollars) a month, could deal a deadly blow to attempts to balance the budget.

The same controversy flares up every December, during the debate on the following year’s budget, which must be ready by the middle of that month.

But this time the positions have been inverted, because the parties that back outgoing President Fernando Henrique Cardoso are now fighting for the raise, after standing in the way of similar measures for the past eight years.

Meanwhile, Lula’s leftist Workers’ Party (PT), which as an opposition force has consistently pressed for significant wage increases, is now trying hard, before coming to power, to contain the pressure for the same demands it has traditionally espoused.

The PT said it would put off a final decision on the matter until March, arguing that the new minimum salary would thus go into effect in April, which would give the economy more time to recover.

The Inter-Union Department of Socioeconomic Research, which has close ties to the PT, estimates that a living wage would have to be five times the current minimum salary, to guarantee basic coverage of food, housing, education, health, transport and recreation for a family of four, as established in the constitution.

Lula and the PT will face the difficulty of reconciling the demands of maintaining fiscal austerity with putting into practice their pledges to fight poverty and curtail inequalities in Brazil, one of the countries in the world with the widest income disparities.

The problem is that some 13 million social security system pensioners receive monthly checks equivalent to the minimum wage. Any increase in the minimum salary would thus aggravate the public deficit, the curbing of which is essential to reactivating the economy and living up to the target agreed with the International Monetary Fund (IMF).

At a recent meeting with the business community, Lula acknowledged that ”the minimum wage is a public sector problem,” since few companies actually pay as little as that, with the exception of sectors that employ unskilled labour, like the construction industry.

Besides the fact that a rise in the minimum wage would swell the social security deficit, many of Brazil’s 5,500 city governments lack the revenues to pay their functionaries even the legal minimum – which means the obstacle standing in the way of an increase for the lowest-income workers and pensioners lies precisely in the public sector.

Nevertheless, Lula has promised to double the buying power of the minimum national wage during his four-year term, as a means of reducing poverty – which affects over half of the population of 170 million in Brazil, Latin America’s biggest economy – and narrowing the social gap.

Reforms of the public pensions system are indispensable to fighting poverty, Raul Velloso, an economist who specialises in public finance, told IPS. The modifications approved in the past few years, like raising the minimum age of retirement and setting a minimum number of years during which workers must contribute to the system before drawing a pension, have fallen short.

But more in-depth changes are difficult to implement, because they require a constitutional amendment, which must be passed by a 60 percent majority in both the Chamber of Deputies and the Senate, in two voting sessions in each house.

There are also untouchable acquired rights. For example, civil servants in Brazil have their own pensions system, and take no cut in income when they retire.

The social security deficit will amount to 70 billion reais (around 19 billion dollars) this year, according to minister of social security José Cechin.

But the public sector – whose pensioners earn, on average, six times more than those who have retired in the private sector – is responsible for three-quarters of that deficit.

Reducing that disparity will be even more difficult for Lula’s government, given the weight of the unions representing public employees in the Central Unica de Travalhadores labour confederation, which has close ties to the PT.

The effects of the partial reform of the system that was already pushed through Congress, which raised the retirement age and stripped public employees hired after its enactment of the privileged pensions enjoyed by civil servants, will not be felt until 30 years from now, said Edward Amadeo, a former Cardoso secretary of economic policy.

If the new government fails to shrink the social security deficit, it will have to cut social spending, said Velloso, who pointed out that Lula says social provision will be the top priority of his administration, through initiatives like the projected ”zero hunger” programme.

The ”only solution” for Brazil’s economic crisis, the magnitude of which is reflected in the devaluation of the real and the difficulties in securing foreign credit, is to continue posting a significant primary surplus in the public accounts, said the analyst.

According to Brazil’s agreement with the IMF, the budget deficit is to amount to no more than 3.75 percent of Gross Domestic Product next year, which means revenues will have to exceed expenditure, without counting the interest on the public debt. Lula has already promised to live up to that goal.

But that would imply limiting social investment and the increase in the minimum wage, which will bloat the social security deficit.

The 2003 budget has no room for tinkering, which means Lula’s challenge will be how to start addressing such problems in the budget for 2004.

ECONOMY/POLITICS-BRAZIL: Minimum Wage Raise, Lula’s First Pitfall

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 18 2002 (IPS) - Adopting an 11-dollar increase in Brazil’s minimum monthly salary, one of the lowest in the world, will be the first pitfall facing president-elect Luiz Inácio Lula da Silva when he takes office on Jan 1.
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