July 11, 2019 | Brazil’s pension reform: stage 1 completed. Now what?

. Jul 11, 2019
pension reform brazil rodrigo maia

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Good morning! The pension reform has passed its first test in Congress—but there remains a long way to go. Yesterday’s vote places Speaker Rodrigo Maia as one of the country’s main power brokers. What happened at the auction of Avianca Brazil’s assets.

House passes pension reform in first of two votes

After more than nine hours of deliberations—and with the government setting aside BRL 2.5bn

to finance projects sponsored by members of Congress—the pension reform was approved by the House floor with a substantial majority: 379 to 131 (with 3 abstentions). The vote, however, is only the first of two rounds. And then the Senate must analyze the reform, too. </span></p> <p><span style="font-weight: 400;">Each step of the way should be fought tooth-and-nail between backers of the proposal, its opponents, and those who are not against the reform </span><i><span style="font-weight: 400;">per se</span></i><span style="font-weight: 400;">, but want specific groups to retain privileged rules (e.g. law enforcement agents).</span></p> <p><span style="font-weight: 400;">In this issue, we will not analyze the rules approved by lawmakers, as the House is still to vote on 15 proposed amendments to the bill today. And some of them could disfigure the reform: such as different rules for police agents, female workers, pensions for the families of deceased workers, and so on.</span></p> <div class="flourish-embed" data-src="visualisation/488947"></div> <p><script src="https://public.flourish.studio/resources/embed.js"></script></p> <h4>What to make of last night&#8217;s vote</h4> <ul> <li><span style="font-weight: 400;">The pension reform will benefit the government indirectly—it should confirm the market&#8217;s bull trend and could foster investments in the mid- to long-term. But this was a political victory for center-right parties and their leader, Speaker Rodrigo Maia (more below).</span></li> <li><span style="font-weight: 400;">Meanwhile, the left was crushed. Not only did the reform have substantial support, but the opposition didn&#8217;t even manage to whip all of its votes. Nineteen left-leaning congressmen voted for the reform. Within PSB and PDT—two major center-left parties—the defection rate reached 30%.</span></li> <li><span style="font-weight: 400;">Savings from the reform were lower than expected. So far, without counting possible amendments to the text, government expenditure on pensions in the next decade should be cut by BRL 714bn. Earlier this year, Economy Minister Paulo Guedes said that anything short of BRL 850bn would be an utter failure.</span></li> <li><span style="font-weight: 400;">Senators—who will analyze the reform next—are already talking about including state- and municipal-level servants in the reform (a major point of contention in the House). The upper house is made up of several former governors—who use the Senate as a stepping stone before running again for local office. If they change anything in the reform, then the House must redo its analysis of the bill.</span></li> <li><b>Go deeper: </b><a href="https://brazilian.report/power/2019/06/09/pension-reform-bill-interview-nery/"><span style="font-weight: 400;">The ins and outs of Brazil’s pension reform bill</span></a></li> </ul> <hr /> <h2>Congress and the &#8220;Maia Calendar&#8221;</h2> <p><span style="font-weight: 400;">If anyone finished last night&#8217;s vote as a winner, it was Speaker Rodrigo Maia. He was the main broker of the reform—supporting the overhaul of Brazil&#8217;s pension system since the Michel Temer administration. Yesterday, he addressed the floor with tears in his eyes, and sent clear messages to the government.</span></p> <p><span style="font-weight: 400;">With chants of &#8220;Rodrigo, Rodrigo&#8221; in the background, Mr. Maia praised many of the targets of President Bolsonaro&#8217;s camp: the traditional center-right parties, the Supreme Court, and even the opposition. He made sure to say that this was a victory of Congress—not the government. </span></p> <p><span style="font-weight: 400;">For years, he had limited influence in Congress, being a member of a party that shrank almost to the point of political irrelevance during the Workers&#8217; Party era. But, as the conservative wave took hold of the country, Mr. Maia placed himself as a leader of the moderate right. And, as the president has abstained from the debates on necessary reforms—he has become (or at least is trying to become) something of a de facto prime minister.</span></p> <p><span style="font-weight: 400;">While celebrating the vote for the pension reform, Mr. Maia announced other priorities for the House: a tax reform, and an overhaul of Brazil&#8217;s civil service. This agenda has been called by politicians the &#8220;Maia Calendar,&#8221; a pun on the Mayan Calendar.</span></p> <ul> <li><b>Go deeper: </b><a href="https://brazilian.report/power/2019/05/10/bolsonaro-brazil-congress-parliamentarism/"><span style="font-weight: 400;">Bolsonaro’s ineffectiveness creates de facto parliamentarism</span></a></li> </ul> <p>&nbsp;</p> <h2>Auction of Avianca Brazil airlines raises USD 174m</h2> <p><span style="font-weight: 400;">The auction of assets owned by the nearly-bankrupt Avianca Brazil airlines was carried out yesterday. In a bid to raise more money, creditors forced the division of the company&#8217;s assets into 7 units, to be offered separately. Three were snapped up by market leaders Gol, while two were purchased by Latam—for a combined USD 174m. The remaining two units drew no bidders.</span></p> <p><span style="font-weight: 400;">The auction was considered pivotal to avoid immediate bankruptcy—but it will surely be questioned in courts. Both airlines and some creditors of Avianca question the legality of the auction, which included as Avianca&#8217;s airport slots (permits to fly from and to airports in determined times) as assets. As these slots are public concessions, courts could decide that they can&#8217;t be sold.</span></p> <p><span style="font-weight: 400;">Only one of the units in auction actually drew some competition between Gol and Latam. It included 19 slots in Brazil&#8217;s busiest airports—Guarulhos, Congonhas (both in São Paulo), and Rio&#8217;s Santos Dumont. Gol ended up taking it, for USD 7.3m. For the other remaining units, airlines closed the deal at the minimum bid.</span></p> <ul> <li><b>Go deeper: </b><a href="https://brazilian.report/money/2019/07/02/avianca-brazil-auction-bankruptcy/"><span style="font-weight: 400;">The war for Brazilian skies</span></a></li> </ul> <hr /> <h2>Also noteworthy</h2> <p><b>Literature. </b><span style="font-weight: 400;">The 2019 Flip—</span><a href="https://brazilian.report/society/2019/07/06/paraty-flip-lost-paradise-brazil-hottest-spot-literature/"><span style="font-weight: 400;">Paraty International Literary Festival</span></a><span style="font-weight: 400;">—started yesterday and runs through until Sunday. Local residents are planning a protest for tomorrow against the participation of journalist Glenn Greenwald at one of the side events. He leads </span><a href="https://theintercept.com/brasil/"><i><span style="font-weight: 400;">The Intercept</span></i></a><span style="font-weight: 400;">, which has leaked private messages of Op. Car Wash-related figures, showing wrongdoings in how cases were conducted. In the first round of the 2018 election, Jair Bolsonaro took 60% of votes in Paraty.</span></p> <p><b>Media monopolies.</b><span style="font-weight: 400;"> A federal court in Alagoas has ruled to cancel the broadcasting licenses of one TV and two radio stations owned by Senator and former President Fernando Collor. The case is one of many in which prosecutors try to remove elected officials from the ownership of media companies—which end up serving as campaigning tools. Reporters Without Borders has called media ownership by politicians as a </span><a href="https://brazilian.report/money/2017/11/01/brazils-media-freedom-speech/"><span style="font-weight: 400;">major threat against freedom of speech</span></a><span style="font-weight: 400;">.</span></p> <p><b>Retail.</b><span style="font-weight: 400;"> Today, Brazil&#8217;s official statistics agency will publish retail data for the month of May. In April, sales dropped 0.6% from the previous month—the worst result for April since 2015. In a country where family consumption is the 2nd-most important </span><a href="https://brazilian.report/money/2019/05/30/understand-brazilian-gdp/"><span style="font-weight: 400;">factor to calculate GDP</span></a><span style="font-weight: 400;"> (trailing only government consumption), another negative result could be a bad omen.</span></p> <p><b>Secular state.</b><span style="font-weight: 400;"> President Jair Bolsonaro took part in an evangelical service in the House of Representatives yesterday. He told the religious caucus that he would appoint a &#8220;terribly evangelical&#8221; judge to the Supreme Court. &#8220;The state may be secular, but we are Christians,&#8221; he said. Unless Congress alters the age limit for justices, Mr. Bolsonaro is set to pick two Supreme Court members by the end of his term.

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