Could pension reform re-elect Jair Bolsonaro?

. May 08, 2019
Can pension reform re-elect Jair Bolsonaro?

May 1 is an important date for trade union movements around the world. And this year, Brazil saw all of its trade union centers share the same stage for the first time in history. While this is partly down to a lack of funds to host events themselves—in order to entice people to spend their holidays listening to politicians, unions usually hire big-time singers to pump up the crowd—the unions’ unanimous repudiation of Jair Bolsonaro’s pension reform bill could also be credited for this unusual togetherness among union leaders.

When congressman and trade unionist Paulinho da Força took the microphone talked about watering down the reform, nobody batted an eyelid. What seemed strange, however, was the reason behind his pledge. Instead of saying that left-wing parties should protect their elderly and fight austerity measures that will force people to work for longer—like many of his counterparts did—Paulinho da Força focused on the realpolitik: diluting the pension reform would stop Jair Bolsonaro sailing toward re-election.

While not a widely explored hypothesis, Paulinho da Força’s assertion raised the question about what the true impact of the pension reform on the political game will turn out to be. After all, Mr. Bolsonaro has begun his term as the least popular first-term president. Could a single bill—even one of this magnitude—be enough to earn re-election?

</span></p> <p><span style="font-weight: 400;">That will depend on the impact of the bill and who is set to benefit from it. History shows there is a </span><a href=""><span style="font-weight: 400;">direct correlation between economic momentum</span></a><span style="font-weight: 400;"> and presidential approval ratings. Mr. Bolsonaro&#8217;s struggling popularity, indeed, comes during rising unemployment and a slugging economic recovery. </span></p> <p><span style="font-weight: 400;">This was particularly evident during the administration of Luiz Inácio Lula da Silva. Lula left office as the most popular head of state in Brazilian history, largely thanks to the </span><a href=""><span style="font-weight: 400;">economic stability created by the Brazilian Real</span></a><span style="font-weight: 400;">, coupled with the commodity boom of the 2000s. His successor, Dilma Rousseff, enjoyed huge approval ratings while GDP grew and the country enjoyed full employment was a reality. But once things turned sour, the people—and Congress—quickly turned against her.</span></p> <hr /> <p><img class="alignnone size-full wp-image-17190" src="" alt="Can pension reform re-elect Jair Bolsonaro?" width="1200" height="800" srcset=" 1200w, 300w, 768w, 1024w, 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><span style="font-weight: 400;">The pension reform has considerable potential to bring some balance to the federal budget and place Brazil among the most trustworthy markets for investors. That could break the current vicious cycle of pedestrian growth rates and high unemployment, which would benefit the sitting president. &#8220;But that will only translate into votes if the improvements are broad enough to affect lower-income families,&#8221; says Rogério Bapstini, a political scientist at Mackenzie Presbyterian University. </span></p> <p><span style="font-weight: 400;">&#8220;If the economy improves and, above all, people’s income goes up under President Bolsonaro, his popularity will grow,” he told </span><b>The Brazilian Report</b><span style="font-weight: 400;">. “However, controlling the federal accounts without having a project for the country might not be enough to improve Brazil&#8217;s structural problems, such as the security system or public healthcare.&#8221;</span></p> <p><span style="font-weight: 400;">In other words: it won&#8217;t cut it for Mr. Bolsonaro if the stock market is the only place the positive effects pension reform are felt. Poorer people are heavily reliant on public services and cannot afford private alternatives. So, there is a chance that macroeconomic indicators may improve significantly, without automatically translating into popular support for the president.</span></p> <p><span style="font-weight: 400;">If approved on its original terms, the pension reform would guarantee BRL 1.2 trillion in savings over the 2020-2029 decade—money that would curb Brazil’s ballooning public deficit, but could also be used to invest in other areas. Data released by the Economy Ministry foresees five years of GDP growth at around 3 percent if the bill is approved. On the flip side, without reform, the Brazilian economy is set to contract, shrinking 1.8 percent in 2023.</span></p> <hr /> <p><img class="alignnone size-full wp-image-17191" src="" alt="Can pension reform re-elect Jair Bolsonaro?" width="1200" height="800" srcset=" 1200w, 300w, 768w, 1024w, 610w" sizes="(max-width: 1200px) 100vw, 1200px" /></p> <hr /> <p><span style="font-weight: 400;">On Twitter, Mr. Bolsonaro has claimed that the pension reform will lead to 4.3 million new jobs by 2022—when Brazilians will go back to the polls to vote for the next president. Currently, around one-quarter of the workforce is either unemployed or underemployed. </span></p> <blockquote class="twitter-tweet" data-lang="en"> <p dir="ltr" lang="pt">Os estudos do Ministério da Economia preveem geração de 4 milhões e 300 mil novos empregos até 2022 com a aprovação da Nova Previdência. Temos a chance de colocar o Brasil de vez nos rumos do crescimento e da prosperidade. É extremamente necessário o apoio de todos.</p> <p>— Jair M. Bolsonaro (@jairbolsonaro) <a href="">April 26, 2019</a></p></blockquote> <p><script async src="" charset="utf-8"></script></p> <p><span style="font-weight: 400;">But even the president himself is willing to accept some dilution to his reform—as long as it ensures savings of at least BRL 800 billion over the next ten years.</span></p> <h2>Who is set to benefit from the pension reform?</h2> <p><span style="font-weight: 400;">Consultancy INTL FCStone expects the pension reform to have an immediate impact on areas such as energy, infrastructure, construction, real estate, and agribusiness—the latter being one of Jair Bolsonaro&#8217;s electoral strongholds.</span></p> <p><span style="font-weight: 400;">In the energy sector, the key segments would be renewable energies—mostly biodiesel and solar power—as well as natural gas, which is set to grow alongside deepwater exploitation. The large package of airport, railway and port privatizations that is already underway could also boost infrastructure, according to the consultancy.</span></p> <p><span style="font-weight: 400;">Construction—a </span><a href=""><span style="font-weight: 400;">very labor-intensive sector</span></a><span style="font-weight: 400;"> which has faced one of its worst setbacks in recent years—could also gain from a boost in the government’s demand. “Balancing the public accounts through the pension reform is essential to open up space for new construction works in the budget. But that would also depend on the government’s economic policy,” says the consultancy, adding that the proximity to a new election cycle could influence political decisions.</span></p> <p><span style="font-weight: 400;">In terms of agribusiness, the sector may benefit from two angles: increased protein consumption and foreign investments in infrastructure, according to the consultancy.  A larger protein consumption would lead to higher demand for animal feed grains, resulting in an “additional 6 million hectares for agriculture up to 2030.”</span></p> <p><span style="font-weight: 400;">Meanwhile, segments likely to receive further investments include storage logistics, goods transport, animal confinement, chicken farming, animal feed production, producers and distributors of tools, agricultural machinery, and the food industry, said the consultancy. </span></p> <p><span style="font-weight: 400;">It is no wonder that a poll conducted by FSB Pesquisa and BTG Pactual showed agribusiness leaders as being among the most optimistic about the economy, in a survey of 1,000 businessmen across all sectors. The results also show that 45 percent of business leaders believed their organization’s investments in the country depend on whether the bill is approved; those who are keen on investing more expect an average increase of 28 percent, while those who would invest less expect a 35 percent reduction.  </span></p> <p><span style="font-weight: 400;">For foreign investors, an extremely diluted bill, or the lack of reform, could be a deal breaker. According to newspaper </span><a href=",decepcao-com-previdencia-nos-fara-deixar-investimentos-diz-gestora-com-us-300-bi-em-ativos,70002778196"><i><span style="font-weight: 400;">Estadão</span></i></a><span style="font-weight: 400;">, American investment manager Neuberger Berman, which holds USD 300 billion in assets, could sell off its Brazilian equity in such a scenario; for them, anything shorter of BRL 500 billion in savings would be “disappointing.” Among their properties in Brazil </span><a href=""><span style="font-weight: 400;">is the education group Uniasselvi</span></a><span style="font-weight: 400;">.

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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