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Brazil lawmakers revisit pension bill as economic outlook dims

Brazil’s pension overhaul proposal returns to the congressional spotlight this week, with a committee of lower house lawmakers opening its analysis of the government’s bill just as the outlook for the economy is deteriorating rapidly.

The special committee convenes after weeks of political delay and a sprinkling of public holidays. From an economic and market perspective, the timing could not be more critical.

The central bank’s weekly survey of nearly 100 financial institutions on Monday showed the median gross domestic product forecast for 2019 fell sharply to 1.49 percent from 1.71 percent the week before.

That was the bleakest outlook so far this year for the Brazilian economy. The forecast in January was for 2.55 percent growth. A string of weak data suggested the economy may have shrunk in the first quarter and is still struggling.

On Monday, the latest purchasing managers index survey of Brazil’s services sector showed activity contracted in April for the first time since September.

The weakening outlook for 2019 suggests this year is something of a write-off economically, despite hopes that investors would be encouraged if social security reform makes progress in Congress.

But hopes on that front have faded also. The government recently increased the targeted savings from the overhaul to 1.237 trillion reais ($312 billion) over the next decade, but market expectations of what will eventually be delivered are around half that.

The Special Committee of some 40 lawmakers is expected to begin debate and analysis of the pension reform bill on Tuesday and hold 11 public hearings this month before submitting a report, possibly in early June.

Further discussions on the report’s recommendations would then follow, and if all goes smoothly, the committee could vote by the end of June, setting the stage for a vote by the lower house plenary in early July.

Most analysts are skeptical of that timeline, citing President Jair Bolsonaro’s struggles to build a coalition behind the bill.

“We see risks of delays pushing the (special committee) vote into July, depending on the level of political cooperation between the government and centrist parties,” Barclays analysts wrote in a note last week.

Investors have grown more pessimistic in recent weeks. The average estimate of expected savings over the next decade in a Morgan Stanley client poll is now 620 billion reais, compared with 690 billion reais only two months ago. Only 5 percent of respondents expect approval by the end of June.

The deteriorating outlook has also weighed on Brazilian markets. The real has hovered around 4.00 per dollar since late March, weaker than many analysts predicted earlier in the year.

 

Source: Reuters

Brazil’s Temer boosts infrastructure spending as graft scandal deepens

Brazil’s government has sharply increased spending in local infrastructure projects proposed by lawmakers, according to budget data reviewed by Reuters on the 4th of July, as a graft scandal threatens to topple President Michel Temer.

Federal spending on infrastructure works and other projects this year sponsored by congressmen for their constituencies jumped to 5.2 billion reais ($1.57 billion) in June, up from 959 million reais the month before, the data showed.

The increase in spending comes at a time when Temer is facing charges with taking bribes in connection with a graft scheme involving the world’s largest meatpacker, JBS SA. Company executives said in plea-bargain testimony that the president took bribes for resolving tax matters, freeing up loans from state-run banks and other matters. Temer also allegedly arranged to receive a total of 38 million reais from JBS in the next nine months.

The president has repeatedly denied any wrongdoing.

Brazil is grappling with record-high budget deficits and the recent splurge illustrates Temer’s efforts to keep his fragmented coalition united despite growing calls for his resignation more than one year before general elections.

Temer’s office declined to comment on the increase in spending in the past month.

Under Brazilian law, it is now up to the lower house of Congress to decide if the president will be tried by the Supreme Court. Two-thirds of the lower house must vote to approve the charge for that to happen.

SPENDING FLURRY

Brazilian legislators can earmark the federal budget for local works, but the federal government must authorize that spending.

Brazil’s budget deficit before interest payments soared to 30.736 billion reais ($9.30 billion) in May, the largest-ever for the month. The gap in the 12 months through May reached 157.7 billion reais, above the official target for a deficit of 143.1 billion reais for this year.

Prosecutor-General Rodrigo Janot last week said he would likely level new charges of racketeering and obstruction of justice against Temer in the coming weeks. Each charge would require lawmakers to vote on whether or not to defend the deeply unpopular president from being tried.

Lawmakers within Temer’s coalition are confident they have the votes to block the two-third majority required to proceed with a trial. But they also acknowledge that if forced to vote on repeated charges against the president, support for the leader could unravel as lawmakers worry about their own reelection next year.

 

Source: Reuters Brazil