World

Brazil pension reform poised for final approval, stocks hit record high

BRASILIA (Reuters) – Brazil’s Senate Constitutional and Legal Affairs Committee on Tuesday approved the text of a pension reform bill, paving the way for a second and final plenary vote later in the day that will finally enact the landmark bill into law.

Brazilian markets rallied and stocks hit an all-time high ahead of the committee vote as the government’s key policy this year to revive flagging economic growth entered the home stretch.

The bill aims to save the Treasury around 800 billion reais ($195 billion) over the next decade via a range of measures including raising the minimum retirement age and increasing workers’ pension contributions.

The government and economists say it is the single most crucial measure to put Brazil’s public finances on a more stable footing, boost investor and business confidence, and inject life into the sluggish economy.

Even though investors have had plenty of time to digest the bill’s content following months of its often tortuous and acrimonious passage through both houses of Congress, markets rose sharply on Tuesday.

“This has been a long time coming, so it is largely priced in. But there’s some optimism and relief today for sure. It’s inevitable, really,” said Jason Vieira, chief economist at Infinity Asset Management in Sao Paulo.

Brazil’s benchmark Bovespa stock index .BVSP rose around 1% to break above 107,000 points for the first time ever, while the real rose more than 1% to 4.07 per dollar BRBY for its biggest one-day gain in six weeks.

Overhauling Brazil’s costly social security system was President Jair Bolsonaro and Economy Minister Paulo Guedes’s number one economic reform push for their first year in office.

The country’s public finances are extremely stretched, in part because social security outlays are so high, but also because tax revenues have fallen far short of expectations because of weak growth.

The economy is on track to grow by less than 1.0% this year, lower than the previous two years and well below the 2% or more most economists, as well as the government, expected at the start of the year.

The government’s original pension reform bill envisaged savings of 1.237 trillion reais over the next decade. That was diluted to just over 900 billion reais in the lower house, then down to around 800 billion reais in the Senate.

Reporting by Ricardo Brito; Writing by Jamie McGeever and Steve Orlofsky

Our Standards:The Thomson Reuters Trust Principles.

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