June 13, 2019 / 5:54 PM / 3 months ago

UPDATE 2-Brazil pension reform bill would save 913 bln reais, seen as government 'victory'

(Adds plan details, economic analyst quote, market reaction)

By Maria Carolina Marcello and Lisandra Paraguassu

BRASILIA, June 13 (Reuters) - An overhaul of Brazil’s social security system will generate savings of 913.4 billion reais ($237 billion) over the next decade with changes to a draft bill proposed in a long-awaited congressional report presented on Thursday.

The savings would be topped up by 217 billion reais from the end of transfers from a workers protection fund to state development bank BNDES, bringing the total fiscal impact to 1.13 trillion reais, according to lawmakers.

The government’s original bill, a cornerstone of President Jair Bolsonaro’s economic plan to restore public finances and revive a flagging economy, proposed savings of 1.237 trillion reais through a range of measures, including raising the minimum retirement age and workers’ contributions.

Economic analysts and Brazilian markets gave the report a thumbs up.

Barclays economist Roberto Secemski said it was a “robust” report, even though he noted total savings will probably still be watered down before the full lower house votes in August.

“The presentation of a robust report translates into upside risks that the final savings to be eventually obtained in the plenary vote could surpass our estimate of 600-700 billion reais, possibly approaching 800 billion instead,” he wrote in a note on Thursday.

“The Brazilian political class understands the necessity to overhaul the pension system due to its chronic, and growing, fiscal deficit, hence, pension reform should be approved this year,” he said.

The benchmark Bovespa stock index closed 0.4% higher, hitting a three-month high above 99,000 points during the session, the real firmed, and 2020 interest rate futures contracts fell below 6.0% for the first time.

Congressman Samuel Moreira’s report will now be debated, voted on and sent to the lower house plenary for a vote at a later date. If passed in the form he presented on Thursday, it will likely be seen as a success for the administration.

Bolsonaro’s Chief of Staff Onyx Lorenzoni said on Thursday savings of around 1 trillion reais would be a “huge victory”, showing that Brazil is on the path to financial solvency. Lower House Speaker Rodrigo Maia said on Wednesday he hoped for a bill packing a punch of between 800 billion and 1 trillion reais.

But the government has not gotten everything it was seeking. Moreira’s report said that a retirement system based on private savings accounts, which Onyx worked hard to include, is not the best system for a country with low average incomes like Brazil. The costs of transitioning to a more market-based system are also high, he added.

Changes to Brazilian states’ and municipalities’ retirement rules were also omitted from the report, as were changes to how older, disabled and rural workers are treated.

Moreira’s report kept the bill’s proposal to set the minimum retirement age for male teachers at 60 years old, but suggested reducing it for female teachers to 57.

The report also recommended keeping the minimum period of contribution for women at 15 years, and only applying the bill’s proposed 20-year period for men. It is currently 15 years for both. (Reporting by Lisandra Paraguassu and Maria Carolina Marcello Additional reporting by Jose de Castro in Sao Paulo Writing by Jamie McGeever Editing by Susan Thomas and Grant McCool)

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