Brazil’s political crisis puts back pension reform

The past month has brought some signs that the continuing political crisis in Brazil is starting to weigh on the more ambitious elements of the government’s reform programme. While President Temer’s administration has already passed labour reforms and this month announced plans to privatise large swathes of the economy, these measures only require a simple majority in Congress. In contrast, pension reforms – which are crucial to stabilising the public finances and form the centre-piece of the reform programme – require constitutional amendments that must clear a much higher bar in Congress. In recent days, the government’s Chief Whip has suggested that these “are no longer on the immediate agenda”. Our sense is that the likelihood of meaningful pension reforms (that deliver savings in excess of 1% of GDP per year) are now no better than 50:50. The one crumb of comfort is that, as things stand, there are still few signs that the political crisis is weighing on Brazil’s economic recovery.