The final pension reform report: what could still change

. Jul 02, 2019
pension system reform brazil Nazi

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Good morning! At last, the Special House Committee on the pension reform will read the final report on the bill. The Brazilian Army paid tribute to a Nazi soldier. Carlos Bolsonaro (one of the president’s sons) lashes out at another general. Brazil prepares itself for 5G technology. And more.

The final pension reform report: what could still change

Today should see Congressman Samuel Moreira present his report on the pension reform bill before the House&#8217;s Special Committee. But the government will have to face the opposition&#8217;s attempts to block the vote, and a wish by centrists to postpone it. In the latter case, lawmakers want to make more changes to the bill—and have complained that the government has yet to fulfill its promise to finance projects sponsored by Congress.</span></p> <h4>What could still change in the pension reform</h4> <ul> <li><span style="font-weight: 400;">State- and municipality-level servants were removed from the first draft of the report, as many local politicians have not supported the reform (despite their states being on the cusp of financial collapse). Speaker Rodrigo Maia is scrambling to include them, but the government seems to have thrown in the towel.</span></li> <li><span style="font-weight: 400;">The report establishes the minimum retirement age for federal marshals as 55 years old, but the president&#8217;s Social Liberal Party wants less strict rules for these professionals.</span></li> <li><span style="font-weight: 400;">Female teachers could obtain the right to receive their full last salary as a pension payment and enjoy the raises of active teachers after the age of 57, instead of the original threshold of 60.</span></li> <li><span style="font-weight: 400;">The report raises the minimum retirement age of politicians from 60 to 65, and establishes that they must pay a difference of 30% on the time remaining until retiring—but parties want better rules.</span></li> <li><span style="font-weight: 400;">The way to calculate pensions could also change. The report considers an average of all salaries over one&#8217;s career, while lawmakers want to use only the average of the 80% highest salaries received.</span></li> </ul> <h4>What shouldn&#8217;t change</h4> <ul> <li><span style="font-weight: 400;">Minimum age of retirement at 65 for men and 62 for women. The minimum length of service for women will be 15 years.</span></li> <li><span style="font-weight: 400;">Progressive contribution rates, which go up depending on the salary—varying from 7.5 to 14% for private workers and reaching up to 22% for public servants.</span></li> <li><span style="font-weight: 400;">Pensions for widows and widowers drop to 60% of the value of the benefit—going up according to the number of dependents, until reaching the limit of 100%.</span></li> </ul> <hr /> <h2>Paying homage to a Nazi Germany soldier</h2> <p><span style="font-weight: 400;">The Brazilian Army paid <a href="">homage</a> on Monday to the late Major Eduard Ernest Thilo Otto Maximilian von Westernhagen (1923-1968), as a former student of the Army&#8217;s Command School and Army Staff. The officer fought for Nazi Germany during World War II and, per reports at the time of his death, had been decorated by Adolf Hitler during the occupation of France.</span></p> <p><span style="font-weight: 400;">In a text published on the Army&#8217;s website, Major von Westernhagen is described as a &#8220;brilliant officer,&#8221; and says he commanded a tank division on the eastern front during World War II, &#8220;being promoted to 1st Lieutenant for bravery in 1943.&#8221; The text also describes the man as a &#8220;survivor of the war and of the totalitarian Soviet prisons, whose life was abbreviated by a cowardly, terrorist act.&#8221; </span></p> <p><span style="font-weight: 400;">As an exchange student at the Army&#8217;s school, the major was assassinated in 1968 by a leftist paramilitary group opposing the military dictatorship—he was mistaken for the real target, a Bolivian captain who took part in the ambush against Che Guevara.</span></p> <p><span style="font-weight: 400;">Brazil declared war on Germany, Italy, and Japan in 1942—and sent 25,000 military troops to Europe in 1944. Over 3,000 of them were wounded, and 443 died.</span></p> <ul> <li><b>Go deeper: </b><a href=""><span style="font-weight: 400;">Brazil during the World Wars</span></a></li> </ul> <hr /> <h2>President&#8217;s son goes after security officer</h2> <p><span style="font-weight: 400;">The power struggles within the Bolsonaro administration gained a new chapter, as Carlos Bolsonaro (the president&#8217;s second-eldest son) launched a not-so-veiled attack on General Augusto Heleno, the head of the president&#8217;s security cabinet. Following his modus operandi, Mr. Bolsonaro charged at Gen. Heleno on Twitter, saying he doesn&#8217;t believe in the general&#8217;s leadership.</span></p> <p><span style="font-weight: 400;">If past cabinet firings are any indication, Gen. Heleno should start fearing for his job security. Using his social media artillery, Carlos Bolsonaro has successfully defenestrated two close advisors to his father—Gustavo Bebianno and General Santos Cruz. The episode marks yet another stance in which the government&#8217;s more ideological wing tries to wrest control from military members in the administration.</span></p> <hr /> <h2>Deforestation spikes in 2019</h2> <p><span style="font-weight: 400;">Amazon deforestation spiked in June 60% when compared to a year ago, per Brazil&#8217;s National Institute for Space Research. Just last month, the rainforest lost 762 sq-km (an area equivalent of two times the area of Belo Horizonte, one of Brazil&#8217;s largest cities). Over the first semester, the loss is equivalent to 318,000 football fields.</span></p> <p><span style="font-weight: 400;">The economic consequences can be tremendous. Studies have linked deforestation to droughts in the southern Amazon rainforest—which impacts rainfall in Southeast Brazil. And that can have major repercussions to several crops. Plus, international groups such as Unilever and Procter &amp; Gamble have vowed not to buy raw materials from deforested areas—which would also impact trade.</span></p> <p><span style="font-weight: 400;">The rise in deforestation levels goes toward Brazil&#8217;s fulfillment (or, in this case, breach) of the goals set during the Paris Accords of Climate Change. That could spark a reaction from green members of the European Parliament, who already show resistance to ratifying the Mercosur-EU trade deal.</span></p> <ul> <li><b>Go deeper: </b><a href=""><span style="font-weight: 400;">Amazon rainforest at the crossroads</span></a></li> </ul> <hr /> <h2>Brazil launches 5G plan</h2> <p><span style="font-weight: 400;">Through a series of public hearings, the government will this week begin to map the opportunities 5G technology could bring to the country. The idea is that the country should have, by March 2020, a base document containing its strategy for 5G, so it won&#8217;t trail too far behind the U.S., Europe, or China.</span></p> <p><span style="font-weight: 400;">The government wants to discuss the use of 5G technology for autonomous cars, smart cities, distance healthcare services, and robotics, among others. The National Telecommunications Agency is preparing the auction of 5G frequencies for next year.</span></p> <p><span style="font-weight: 400;">Leonardo Morais, president of Brazil’s National Telecommunications Agency, recently explained the government’s dilemma: competition or efficiency. By fractioning out the 5G spectrum, more companies could explore the technology—but would only be able to provide a limited service. A more concentrated market could allow operators to fully utilize what 5G offers.</span></p> <ul> <li><b>Go deeper: </b><a href=""><span style="font-weight: 400;">How Huawei controls telecom infrastructure in Brazil</span></a></li> </ul> <hr /> <h2>Also noteworthy</h2> <p><b>Trade.</b><span style="font-weight: 400;"> Brazil&#8217;s trade surplus narrowed to USD 5bn in June, as imports rose and exports fell. Over the first 6 months of 2019, the surplus is down 9% from last year. Per yesterday&#8217;s Focus Report, a weekly survey by the Central Bank with top-rated investment firms, investors forecast GDP growth at 0.85% for the year—down for the 18th straight week.</span></p> <p><b>Corruption.</b><span style="font-weight: 400;"> Federal marshals investigating the use of dummy candidates by the Social Liberal Party in Minas Gerais to siphon money from a publicly-financed electoral fund, indicted 7 people—including an advisor to Tourism Minister Marcelo Antônio, who presided over the party&#8217;s regional section when the illegality took place. Still, President Bolsonaro is not considering firing Mr. Antônio.</span></p> <p><b>Oil and gas.</b><span style="font-weight: 400;"> Brazil&#8217;s oil and natural gas production has reached a new record: 3.5m barrels of oil equivalent per day in May, per the National Oil Agency. Over 60% (2.1m barrels) of that has come from deepwater pre-salt reserves, which is also a record. Despite the numbers, Petrobras closed yesterday down 0.55% on the São Paulo stock exchange.</span></p> <p><b>Car Wash.</b><span style="font-weight: 400;"> Justice Minister Sergio Moro will speak today before the House&#8217;s Constitution and Justice Committee. He will talk about the ongoing leaks by </span><i><span style="font-weight: 400;">The Intercept</span></i><span style="font-weight: 400;"> of messages exchanged between him and Operation Car Wash prosecutors, showing that he collaborated with investigators. Opposition parties try not to repeat their fiasco of two weeks ago, when unprepared senators were unable to put Mr. Moro under any pressure during a committee hearing.</span></p> <p><b>Energy.</b><span style="font-weight: 400;"> Light S.A. has announced a follow-on stock offering, expecting to raise BRL 2bn. The stock price will be set on July 11, in what is a crucial move to reduce the company&#8217;s financial leverage—at 3.7 times its annual cash flow by the end of March, dangerously close to the limit established by debt contracts: 3.75 times.

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