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Brazil blinks again in austerity push to curb retirement perks

Since being elected last year, Brazil’s President Michel Temer has succeeded in passing a bill to cap government spending and opening up Brazil’s oil fields to foreign investors.

Brazilian President Michel Temer is offering further concessions on a flagship pension overhaul designed to shore up public accounts, after growing signs he was losing support in Congress.

The government will present by April 18 its new proposal, which will include changes to protect the most vulnerable citizens and reduce excess privileges, the bill's rapporteur, Arthur Maia, said at a press conference Thursday. But he added that the alterations would not affect the fiscal impact of the reform. Earlier, Mr. Temer ruled out negotiations on one of the legislation's core elements: a minimum retirement age of 65 for men.

Following legislative setbacks on other bills such as states' debts and ride-sharing apps, a survey this week showing low congressional support for pension changes was the latest sign the government's fortunes could be turning. Since taking office last year, Mr. Temer has succeeded in passing a bill to cap government spending and open up Brazil's oil fields to foreign investors. Hopes that he would continue approving reforms have driven up the stock market and strengthened the real. But growing opposition to the key pension reform could jeopardize those gains.

"They're softening the reform when you compare it to what was originally proposed, so it will weaken the impact," said Raul Velloso, a specialist in public finances and director of ARD Consultores. "With relatively minor softening, it has chances of being approved."

The government's original proposal set the minimum retirement age at 65 for both men and women, and requires at least 25 years of contribution. At present, the average retirement age in Brazil is around 58. There would be a transition period for those older than 50 years of age.

Mr. Maia said at the press conference on Thursday that the government will make changes to the current proposal regarding the transition period to the new rules, the retirement of rural workers, the pensions of teachers and police officers, and disability benefits. "The requested changes are all directed toward the less privileged," he said.

A poll published by O Estado de Sao Paulo newspaper on Wednesday showed fewer than 100 legislators in favor of the reform, vs. more than 250 against. The government needs at least 308 votes in the lower house of Congress for the constitutional amendment to proceed. Another survey carried out last month found that 72% of Brazilians are against the reform and only 11% favor it — the others didn't express an opinion.

The proximity of the 2018 elections is making legislators nervous, said Rafael Cortez, a political analyst from Tendencias Consultoria. As such, the relatively muted market reaction to the government's recent setbacks may be mistaken, he warned.

“The market has been pricing the political risk incorrectly,” he said.

Thiago Aragao, a political strategist with Arko Advice, said that legislators' opposition was part of their negotiating strategy to obtain benefits from the government. "The allies are raising the cost of doing business," said Mr. Aragao, who still sees the bill being approved by mid-year.

The question is how much more the government will have to concede to obtain support. If it doesn't maintain the minimum retirement age of 65 for men and a transitional arrangement that includes a substantial part of the working population, the reform will be pointless, said Ricardo Mendes Ribeiro, a political analyst from MCM Consultores.