RIO DE JANEIRO, Brazil -- Brazil's Congress is close to passing long-awaited social security reform.
With all provisions of this amendment voted on -- including one that links retirement payouts to age and length of contributions -- Brazil's lower house of Congress is almost certain to pass the entire amendment in a final, second-round vote, perhaps early this month.
If that timetable is met, President Fernando Henrique Cardoso will sign social security reform legislation by the end of the month.
The key reform provision passed by the Chamber of Deputies -- the lower house -- links payouts for those now in the system to age as well as length of contribution.
The bill would hold off full benefits for men until they turn 53, women would have to be 48.
Until now, retirement payouts have been determined only by number of years worked. The length of time a person must contribute to the system before receiving full benefits -- 35 years for men, 30 for women -- would not change under the proposal.
Another key measure recently passed by the Chamber of Deputies reduces social security benefits for civil servants earning more than $1,100 per month to up to 76% of their last salary, with the provision that the longer one contributes, the greater the percentage of salary retained.
The government had feared that both of these pivotal, money-saving measures might be defeated after an early May Chamber of Deputies vote knocked out a key measure that would have linked retirement payouts to newcomers who enter the system after the bill passes to the system to age (60 for men, 55 for women) as well as length of contribution. It was the first major congressional vote the Cardoso administration had lost.
This provision was technically less crucial to social security reform because its payout-savings impact won't kick in for 30 to 40 years, when those employees retire. Furthermore, the government, could have Congress vote on this issue again if new legislation is introduced next year.
But the provision's unexpected defeat meant the other just-passed key amendment measures governing age and benefit levels -- to go into effect immediately --would be even harder to get through the Chamber.
The government got the Chamber to pass those other key provisions by threatening to expel members of its coalition parties who didn't vote for them, an expulsion that would have made it impossible for party members to run for re-election this year (when all Chamber seats are up for re-election). That threat seemed to do the trick.
The passage of the social security reform amendment is important for two reasons. First, it should save the government $3 billion to $4 billion a year, and thus help reduce the deficit-running social security program and, by extension, the government's huge budget deficit of 6.22% of gross national product.
"The likely June passage of the social security amendment, virtually guaranteed by the Chamber's passage of most of its key provisions, means the government will be able to significantly reduce the social security program's growing deficit, which will help reduce the federal budget deficit," said Cristiano Noronha, a political analyst with the Brasilia-based Arco Advice consulting firm. "This will, in turn, strengthen the government's economic stabilization program."
The passage of the social security amendment also would send a message to foreign investors that the government will be able to get Congress to pass other structural reforms, like tax reform, also needed to sustain its economic program.
"Had the government lost the vote on the just-passed provisions -- which would have virtually scrapped social security reform --that defeat would have told foreign investors that the government didn't have the clout to get such reforms through Congress," said David Fleischer, a Brasilia-based political scientist. "The now-certain passage of the social security amendment will send just the opposite message."
The only doubt surrounding social security is when the Chamber of Deputies will pass the entire amendment and when President Cardoso will sign it into law.
If, for bureaucratic reasons, the process isn't finished soon, it might have to wait until the end of the year because election campaigning and World Cup games, both of which begin in June, could make it difficult to reach the quorum needed for final-round Chamber passage of the amendment until after elections in October and November.
In mid-May, the government got another less-important but nonetheless money-saving social security amendment provision passed under which for every $1 a civil servant pays into a pension fund, his state-owned-company employer can put in no more than $1. This parity adjustment was meant to correct the current average of $1.80 contributed by state-owned companies into their pension funds for every $1 contributed by an employee. Because the measure curbs payouts by state-owned companies, it trims government payouts. But the Association of Brazilian Pension Funds opposed the measure, holding that state-owned companies had been substantially reducing the size of pension fund contributions from the average contribution four years ago of $4 for every $1 put in by employees.