
Following pension reform, Brazil looks to open up economy
The administration of Brazilian President Jair Bolsonaro will turn its focus to economic reforms following congressional approval of the key pension reform.
On Tuesday night, in a second and final round of voting the senate approved the pension reform.
A strong focus of the upcoming reforms and measures will be on making the Brazilian economy more competitive and open to the world.
The planned measures include reducing import tariffs for various products and increasing banking sector competition, a high-ranking government official, who could not be named, told BNamericas.
There are however trade groups who believe the government should thread carefully in its quest to change the Brazilian economy.
"Any move on the trade side must be adopted carefully and gradually in order to avoid a massive destruction of the country’s industries. Brazil is coming from various years of weak economic performance, which reduced the capacity of industries to invest and increase their competitiveness; a fast opening of the economy could destroy several local players," José Augusto de Castro, head of Brazil’s exporters association (AEB), told BNamericas.
The reduction of import tariffs will be discussed by the government with the other members of the Mercosur trading bloc – Argentina, Paraguay and Uruguay – at a meeting in the beginning of December.
On the banking side, the government will focus its efforts on bringing down the high interest rates that consumers and companies pay.
While Brazil's Selic benchmark interest rate is at a record low of 5.5%, the average annual interest rate charged by commercial banks was 37.9% in August, according to the most recent figures from the central bank.
The country's banking sector has a high degree of concentration as the five largest banks command a combined asset market share of around 80%.
The government is also working on a tax reform proposal to reduce the complexity of the current system as well as a proposal to reduce salaries in the public sector.
THE PENSION REFORM
Pension reform approval was seen by many analysts as a crucial step to improve Brazil's public finances and the overall economy.
The government had initially estimated that the reform would save up to 1.2tn reais (US$289bn) over 10 years, but the estimate has been reduced to around 800bn reais as the reform proposal was watered down to secure congressional approval.
The main points of the original proposal – including a minimum retirement age of 65 years for men and 62 for women, and an increase in the contribution rates and periods for both public and private sector employees – were maintained.
Research firms like Capital Economics do not see the pension reform having any major short-term impact on the economy.
"For our part, we expect that GDP growth will strengthen in 2020. But that has much more to do with lower inflation and the boost to households’ incomes, and an improvement in the oil and iron ore sectors, than to the government’s reform agenda," said William Jackson, an economist at Capital Economics, who sees Brazil’s GDP expanding 2% in 2020.
The sluggish economy is likely to expand around 0.8% this year, according to local economists that are surveyed weekly by the central bank.
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