(Bloomberg) -- President Jair Bolsonaro’s landmark pension reform proposal was delayed in Brazil’s Senate just as it was headed to be signed into law.
Senators had already approved the reform’s main text when doubts about the impact of a proposed amendment to the bill led Senate President Davi Alcolumbre to suspend the session until Wednesday morning. That particular modification, favoring workers submitted to harsh work conditions, was gaining traction among lawmakers when government supporters argued its approval would force the reform to return to the lower house.
Alcolumbre said he was requesting a technical opinion to clarify that point before allowing senators to proceed with the vote. He refrained from ensuring the reform wouldn’t need additional approval from house deputies in case the amendment is approved.
“I believe we’ll vote on the final two amendments tomorrow,” he told reporters after the decision. “Markets trust in the parliament,” he added, dismissing concerns that investors could sell off Brazilian assets after yet another unexpected delay in the reform’s approval.
The final two amendments would reduce the reform’s expected savings by 76.5 billion reais ($18.7 billion), from a total 800 billion reais over a decade, but the main concern is whether the text would be changed to an extent that requires additional approval from lower house deputies.
The real slid 0.1% to 4.0870 per U.S. dollar in early morning trading on Wednesday as investors waited for the Senate session to resume.
After clearing the Senate, the new retirement rules are expected to come into effect as soon as Alcolumbre, as head of Congress, signs them into law at a ceremony that’s likely to take place after Bolsonaro returns from an international trip.
Pension reform represents the cornerstone of Bolsonaro’s economic policy and the focus of his first sustained legislative drive. The bill is crucial for investors who have expressed alarm over deteriorating public finances in Latin America’s largest economy. But while the legislation attacks one of the biggest culprits of Brazil’s rampant budget deficits, other measures are needed to gain better control of spending.
Before Bolsonaro, four previous presidents had tried and failed to implement a broad overhaul of the country’s pensions, which gobble up roughly 8.6% of gross domestic product. Still, officials were only able to rally congressional support with the backing of lower house Speaker Rodrigo Maia and after making significant concessions.
The military was left out of the reform, as were states and municipalities, and plans to establish individual savings accounts were shelved. When put together, the alterations reduced the bill’s projected savings from an initial target of over one trillion reais.
Why the Future of Brazil’s Economy Rides on Pensions: QuickTake
Bolsonaro has said the legislation is essential for economic growth, while his Economy Minister Paulo Guedes has said it will buoy investor confidence and help attract new investment. But there’s no shortage of challenges ahead.
Brazil’s public debt stands at nearly 80% of GDP, a figure that’s much higher than other emerging markets including Mexico, Chile and Indonesia. Even considering pension reform approval, that ratio won’t start falling until 2023, according to government estimates.
Roughly 90% of public spending is mandated by the nation’s Constitution, meaning that budget flexibility is minimal. Furthermore, Brazil’s economic growth projections are hovering around just 1% for the third straight year, further hindering efforts to reduce debt.
(Updates with real open in 6th paragraph. A previous version corrected the currency in 5th paragraph.)
--With assistance from Murilo Fagundes and Flavia Said.
To contact the reporters on this story: Samy Adghirni in Brasilia Newsroom at firstname.lastname@example.org;Simone Iglesias in Brasília at email@example.com
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