Brazil markets slump as pension reform reality bites
(Updates with closing market prices)
By Jamie McGeever
BRASILIA, April 24 (Reuters) - Brazilian markets slumped on
Wednesday, a day after a planned pension overhaul cleared a
congressional hurdle following a lengthy debate that highlighted
the government's struggle to build support for its signature
The real had one of its worst days of the year, falling
through 3.99 per dollar for the first time in almost a month
, bringing the psychological barrier of 4.00 within
The Bovespa stock market fell 0.9 percent to 95,045.43
points, while market interest rates and bond yields
jumped. The yield on Brazilian 10-year bonds rose 11 basis
points, its biggest rise in a month.
Any optimism over the Constitutional and Legal Affairs
Committee's (CCJ) vote by 48 votes to 18 approving the pension
reform bill's constitutionality quickly evaporated as investors
focused on the obstacles ahead rather than the one just cleared.
"After the government struggled to get the bill through the
CCJ, markets are asking of the government: 'Is that the best you
can do?'" said Jose Francisco de Lima, chief economist at Banco
Fator in Sao Paulo.
Unexpectedly bad March jobs data and tax revenue figures
also added to concerns about Brazil's sputtering economy,
weighing on investor sentiment.
Jose Carlos Faria, head of Latin America Economic Research
at BNP Paribas in Sao Paulo, said the CCJ vote keeps pension
reform approval on track for October, with anticipated savings
of only 500–600 billion reais over the next decade — far below
the government's 1.1 trillion reais ($275 billion) target.
He noted four changes the CCJ made to the original bill,
removing passages that would have:
-tweaked rules for a worker severance fund
-let the minimum retirement age be changed through ordinary
-directed litigation against the reform to a court in the
-let the executive branch alone make further changes to the
social security system.
None of the changes will dilute the bill's fiscal impact —
at least for now.
"It is likely to be a challenging process, with the reform
diluted during the bill's passage," Faria wrote in a note on
The bill now goes to a special commission before proceeding
to the lower house plenary, where it will need at least 308
votes in two rounds of voting to advance to the Senate.
Brazil's spending on social security is among the highest in
the world, and a radical overhaul is central to President Jair
Bolsonaro's economic agenda. However, cuts to pension benefits
are a tough sell in Congress, and economic data suggests the
economy is flagging, perhaps even shrinking.
The government, economists and investors say pension reform
is essential to get the fiscal deficit under control, attract
foreign investment and accelerate an anemic recovery from a deep
($1 = 3.9920)
(Reporting by Jamie McGeever; Additional reporting by Gram
Slattery; Editing by Steve Orlofsky and Alistair Bell)
First Published: 2019-04-24 20:25:04
Updated 2019-04-24 23:01:41
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