BRAZIL: Pensions Reform Surmounts First Barrier, Despite Protests

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 6 2003 (IPS) - Although the Brazilian government of Luiz Inácio Lula da Silva scored a triumph with the approval of its pensions reforms bill by the lower house of parliament, the economy continued to feel the effects of the uncertainty surrounding the future of the crucial constitutional amendment.

The leftist governing Workers’ Party (PT) moved the vote on the bill, which is aimed at slashing the public pensions system deficit, ahead one day in order to avoid the pressure of the protest held by public employees outside of Congress in Brasilia Wednesday. According to police estimates, the protest drew around 50,000 demonstrators.

Four people were injured when demonstrators attempted to push their way into the building and smashed through glass partitions.

This South American country of 170 million has been shaken by the hot issue of pensions reform since Jul. 8, when several sectors of civil servants went on strike to protest the proposed pensions reforms, which would curtail several of the privileges they currently enjoy.

Lawmakers and government ministers have been heckled and insulted in a number of public incidents. The turmoil in the capital began to heat up even more on Tuesday.

But the proposed constitutional amendment, which made it through the first crucial vote in the early hours of Wednesday, may undergo additional modifications before it goes to another vote in the 513-member Chamber of Deputies and to two others in the 81-member Senate.

The process is not expected to be completed before October, at the earliest, due to the fact that passage of a constitutional amendment requires 60 percent support in four voting sessions, two in each house.

And if the Senate introduces major modifications, the amendment would have to go back to the lower house, further prolonging the process.

In the first vote in the Chamber of Deputies, 358 legislators came out in favour of the bill – 50 more than were needed – while 126 voted against it, after 14 hours of heated debates and negotiations among key lawmakers, ministers and President Lula himself.

The amendment is aimed at overhauling the current social security system, under which public employees draw pensions equal to their salaries, and are even entitled to the raises granted to their active colleagues.

Such a system does not exist anywhere else in the world, even in countries with strong welfare states, Social Security Minister Ricardo Berzoini, a former trade union leader, has repeatedly pointed out.

Under the proposed reforms, public employees still on active duty will continue to enjoy those benefits only if they retire at the age of 55 in the case of women and 60 in the case of men. The current age of retirement is 48 and 53 years, respectively.

They will also have to work a minimum of 20 years in the public sector and at least 10 years in the post from which they retire.

Like the monthly checks drawn by private sector retirees, the pensions of civil servants hired in the future would be capped at 2,400 reais (800 dollars), and public employees would also have to pay into a separate pension fund if they wished to receive a higher monthly payment.

The reforms proposed by the Lula administration are aimed at reducing the government’s budget deficit, which is mainly the result of the social security system, according to economists who see the pensions reform as indispensable to restoring investor confidence and bringing about a resurgence of the Brazilian economy.

The Social Security Ministry reported that the social security deficit has climbed to 56 billion reais (18.6 billion dollars), 70 percent of which corresponds to the 3.2 million public sector pensioners and the rest to the 17.5 million private sector retirees.

The original version of the bill, which the government sent to Congress on Apr. 30, was backed by 78 percent of respondents in a survey carried out in May. According to representatives of the financial market and the business community, the savings it would have brought about would have been sufficient to give the economy the boost it needed.

But investors and business have been frustrated by the concessions made by the government mainly due to pressure from the judiciary. The changes to which parliamentary leaders agreed reduced the potential savings and will make it necessary to pass further reforms within the next decade, say analysts.

Investors’ concerns were aggravated by news about the recovery of the United States economy, which is drawing investment away from the developing world.

In the past few days, the local currency, the real, has lost nearly three percent of its value, and the country-risk rating (an indicator of the perception in financial markets of the government’s ability to keep up with bond payments) rose from 700 to nearly 900 points, which will result in higher financial costs for Brazil.

But even though the pensions reform was modified before it made it through the first round of voting in Congress, it represents a major step forward, said economist Raul Velloso, an expert in public finances. However, the amendment’s fiscal objectives could be seriously compromised if further concessions are made, he warned.

The reform is now threatened by 13 individual amendments that have been proposed by lawmakers, which would introduce major changes to the text approved by the Chamber of Deputies.

For example, one proposal would annul the clause reducing the pensions paid to the spouses and children of public employees who have passed away. Under the current system, they are entitled to a pension equivalent to the late employees’ entire salary. But the reforms that made it through the lower house limit inherited pensions to 2,400 reais (800 dollars) a month.

In addition, several aspects of the reform would depend on a Supreme Court ruling in case their constitutionality is questioned.

Further, the fact that one clause, which would limit the salaries and pensions of judges, is staunchly rejected by the judiciary has raised fears of a future conflict between the various branches of government, say analysts.