The São Paulo Stock Exchange returned to a surprise after the state holiday on Tuesday. The pension reform, approved only a week earlier by the Special Commission, would pass the first round of voting in the House already that Wednesday (10). At the end of that day, the House concluded: 379 votes in favor, 131 against, and only three abstentions.

As I already said, politics has its own pace. Often, the rate of proceedings is unforeseeable, being conditioned by various factors particular to the political game. This explains why there are so many surprises when expectations are low, and so many disappointments due to high expectations.

</span></p> <p><span style="font-weight: 400;">A good example is the timetable established by Rodrigo Maia. The House speaker intended (and succeeded) to put the basic text to a vote on Wednesday night, and then vote on the amendments as a whole in the early hours of the following morning. As soon as this latter process began, however, he suspended the session. The reason being that the quorum rapidly shrunk and federal congressmen were not sufficiently aligned to avoid eventual changes which would have evacuated a lot of the bill’s content.</span></p> <p><span style="font-weight: 400;">In this context, the session was postponed until Thursday (11) at 9 am. Once again, it never got going—negotiations on the amendments took up the whole day and session only opened at 5:45 pm. It was thus not possible to conclude voting that day and the amendments were only analyzed in full on Friday. The delay compromised the voting of both rounds before congressional recess. Evidently, it was enough to destroy, in the space of 24 hours, all the optimism created on Wednesday.</span></p> <p><span style="font-weight: 400;">Time in Brasília is </span><i><span style="font-weight: 400;">sui generis</span></i><span style="font-weight: 400;">. It is a risk to try to make projections on the completion of proceedings. It’s much easier to try to guess the result of voting, or at least, the chances of a bill being approved or not. </span></p> <h2>When, not <i>if</i></h2> <p><span style="font-weight: 400;">For this reason, I argued since the beginning of the year that pension reform would pass, without a shadow of a doubt. It will pass in the Senate too. The question of “when” is far more abstract, despite there being some generic metrics by which we might evaluate it. </span></p> <p><span style="font-weight: 400;">See the chart that I created in mid-April, when pension reform had been recently approved by the Constitution and Justice Commission of the House. Many parties had naturally not concluded their positioning on the question, but there already existed a clear need for the government to raise support from the so-called &#8220;<a href="https://brazilian.report/opinion/2018/07/31/brazil-big-center-2018-president/">Big Center</a>&#8220;</span><i><span style="font-weight: 400;"> </span></i><span style="font-weight: 400;">[ an agglomeration of center and right-wing parties]. </span></p> <p><span style="font-weight: 400;">With the exception of PT, PSOL, PCdoB, and Rede (which has only one congressman), the majority of congressmen from all other parties were in favor of the reform—despite some concerns about the original text—or had an undefined position.</span></p> <p><img class="size-full wp-image-20700 aligncenter" src="https://brazilian.report/wp-content/uploads/2019/07/1-1.jpg" alt="house brazil pension reform caucus" width="810" height="450" srcset="https://brazilian.report/wp-content/uploads/2019/07/1-1.jpg 810w, https://brazilian.report/wp-content/uploads/2019/07/1-1-300x167.jpg 300w, https://brazilian.report/wp-content/uploads/2019/07/1-1-768x427.jpg 768w, https://brazilian.report/wp-content/uploads/2019/07/1-1-610x339.jpg 610w" sizes="(max-width: 810px) 100vw, 810px" /></p> <p><span style="font-weight: 400;">In numbers: in the above scenario, 240 lawmakers were in favor (summing up those totally in favor and those asking for changes so as to support the bill), 131 were undecided and 142 were against.</span></p> <p><span style="font-weight: 400;">In Wednesday’s voting, 379 voted in favor, 131 against and three abstained. Incredibly, the number of those against fell—largely due to PSD and PDT, who did not manage to unite their caucus.</span></p> <p><img class="size-full wp-image-20701 aligncenter" src="https://brazilian.report/wp-content/uploads/2019/07/2-1.jpg" alt="house brazil pension reform caucus" width="810" height="450" srcset="https://brazilian.report/wp-content/uploads/2019/07/2-1.jpg 810w, https://brazilian.report/wp-content/uploads/2019/07/2-1-300x167.jpg 300w, https://brazilian.report/wp-content/uploads/2019/07/2-1-768x427.jpg 768w, https://brazilian.report/wp-content/uploads/2019/07/2-1-610x339.jpg 610w" sizes="(max-width: 810px) 100vw, 810px" /></p> <p><span style="font-weight: 400;">That the result was a total success, there is no doubt. Not even the government had banked on such an optimistic projection. What explains the success? I believe that there are three determining factors: the greater support for the reform among the population, Congress’ ideological alignment, and the role played by Rodrigo Maia and Rogério Marinho in setting the agenda. </span></p> <p><span style="font-weight: 400;">From the time of Temer’s efforts to reform the pension system until today, the situation has become clearer. There is a larger understanding—a greater “maturity”—on the necessity of reform for the country. Over this period, indices of rejection of the reform among the population fell significantly. While surveys in 2017 showed nearly 70% of the population against the reform, the latest Datafolha survey (from this week), shows that practically 50% of the population supports the new pension system and “only” 44% rejects it. One must consider, also, that the question is, essentially, unpopular.</span></p> <p><span style="font-weight: 400;">Secondly, the composition of Congress in 2019 features a growth in parties historically identified with the center-right and more in favor of economic liberalism. Additionally, there is the failure of the heterodox economic policies of the second Dilma government, and we have a broader scenario that is favorable to orthodox approaches, involving liberalizing reforms to the economy.</span></p> <p><span style="font-weight: 400;">Finally, the brilliant work done by the House Speaker, Rodrigo Maia, and by the pensions secretary, Rogério Marinho, were decisive in delivering the reform in its current shape. Maia sewed up the necessary alliances for the reform to pass, while Marinho made sure it didn’t end up too watered-down. Of course, other actors were also important, but the applause and innumerable compliments received by both on the day the reform passed the first round of voting in the House are indicative.</span></p> <p><span style="font-weight: 400;">It makes sense to be optimistic about the future. Although there are still some hurdles to jump, we have corrected the errant path that the Brazilian economy was on and, if we overcome several other challenges, a new cycle of growth may be unleashed. There is an avenue open for the private sector to take the lead on investment in Brazil. Soon, we will approve the pension reform and then tax reform, privatizations, the Economy Liberty bill, amongst others, will be on the agenda. In this window of opportunity, it will be necessary to tame one lion per day.</span></p> <hr /> <p><a href="https://levanteideias.com.br"><img class="alignleft wp-image-18346 size-medium" src="https://brazilian.report/wp-content/uploads/2019/06/02_levante_logo_A-300x37.png" alt="" width="300" height="37" srcset="https://brazilian.report/wp-content/uploads/2019/06/02_levante_logo_A-300x37.png 300w, https://brazilian.report/wp-content/uploads/2019/06/02_levante_logo_A-768x94.png 768w, https://brazilian.report/wp-content/uploads/2019/06/02_levante_logo_A-1024x125.png 1024w, https://brazilian.report/wp-content/uploads/2019/06/02_levante_logo_A-610x74.png 610w" sizes="(max-width: 300px) 100vw, 300px" /></a></p> <h6 style="text-align: right;">Written by<br /> <a href="mailto:[email protected]"><strong>Levante Ideias de Investimentos</strong></a></h6> <p>

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OpinionJul 16, 2019

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BY Felipe Berenguer, Levante Ideias de Investimentos

Levante's group of insiders and experts make investing in Brazil less complicated.