BRASILIA (Reuters) - The latest draft bill for Brazil’s landmark pension reform is substantially weaker than the original proposal and will probably force the government to take additional austerity measures, economists said on Thursday.
Changes made on Tuesday by the bill’s sponsor after talks with party leaders and government officials are likely to reduce savings from the bill by about 40 percent over the next decade, according to preliminary estimates by private economists.
The pension reform was expected to lower government spending by 750 billion reais to 800 billion reais ($238 billion to $254 billion) over the next 10 years, Finance Minister Henrique Meirelles said earlier this month.
Economists said the reform remains crucial for Brazil to keep its public finances under control, even if it is diluted by the lower minimum retirement age for women and a more gradual transition period due to the latest compromises.
Yet those changes may allow social security spending to keep growing at a rate that could make a recently implemented 20-year public spending cap unfeasible by 2021, Itaú Unibanco economists led by former central bank director Mário Mesquita wrote.
“Complying with the ceiling would need compensatory measures such as the end of various subsidies,” they wrote, adding that the latest draft provides an estimated 57 percent of savings from the original proposal.
Meirelles was more sanguine in comments to journalists in Washington on Wednesday, estimating that the bill would still bring about 75 percent of the savings originally forecast.
He also warned that the government was reaching a limit in the negotiations with lawmakers, but on Thursday he reiterated that he was “positive” about the process.
The Finance Ministry will soon publish a technical note to explain the official forecasts, a spokesman said.
“Meirelles’ estimate seems too optimistic,” said Fabio Klein, an economist with Sao Paulo-based consultancy firm Tendências, who forecast about 60 percent of the bill’s original savings.
Without reform, Brazil’s aging population is expected to lift social security spending to 17.2 percent of gross domestic product (GDP) by 2060, from 8.1 percent last year, Meirelles said in a presentation earlier this month.
With the original proposal, he said social security spending would probably stabilize around 8 percent of GDP, he said.
“The government may have to propose another reform in ten years, or even before that,” said Bruno Lavieri, an economist with consulting firm 4E in São Paulo.
Reporting by Silvio Cascione; Editing by Chizu Nomiyama