Brazil passes controversial pension reforms


Brazilian PresidentLuiz Inacio Lula da Silva celebrated political victory today after Congress passed a historic reform of publicpensions that other leaders only talked about for years.

The reform passed its most critical hurdle in the earlyhours of Thursday after a second all-night session endorsed themost contentious elements, setting the scene for structuralchanges analysts say are crucial for Brazil's economic health.

Even if images of windows smashed by angry civil servantsprotesting at the Congress soured the success, it was no smallfeat for a former metalworker who has led Brazil for just sevenmonths after fighting for the presidency since 1989.

"Without a doubt, it was a very important victory," saidpolitical analyst Haroldo Britto. "The government showed thatin spite of what appeared as a chaotic process sometimes, it iscapable of delivering results."

The reform had been discussed in Brazil's Congress sincethe early 1990s and Lula's predecessor, Fernando HenriqueCardoso, made no headway on it during his eight years inpower.

Costly benefits for Brazil's civil servants were enshrinedin the 1988 constitution - which was intended to modernizeBrazil after two decades of military rule - and included theright to retire with a pension equivalent to the last salary.

Lula's Workers' Party championed those rights for years,making civil servants faithful allies. Brazil has an estimated3 million active and retired civil servants.

But Lula's steering of the party toward the center and awayfrom old-style socialism, ensuring his 2002 election win, meanthe adopted a reform that became increasingly important.

Last year, the government spent nearly 5 percent of grossdomestic product on public pensions, roughly equivalent to theannual budget deficit. Latin America's largest economy isstruggling to reduce a debt burden of more than $250 billion.

The reform raises the retirement age, caps pensions forfuture civil servants and taxes the pensions of retired publicworkers, generating savings the government estimates at 56billion reais ($18.6 billion) over 20 years.

Civil servants went on strike and protested, prompting oneBrazilian columnist to call the Congress votes a "traumaticvictory." Analysts predicted Brazil's first elected leader froma leftist party would remain highly popular.

"One would expect some wear on a government that pushed avote on the pension reform," said Carlos Lopes, a politicalanalyst at the SantaFe Ideias consultancy. "But I would say itwas not tarnished much because at the end it is winning."

Lula wanted to pass the pension reform and an overhaul ofthe tax system early in his term in order to turn quickly tohis campaign promises to create millions of jobs, help the poorand lead an economic recovery. He now has more cash to dothat.

"Delivery of a sharp reform is never easy as they areinvariably contested by the interest groups that benefit fromthe status quo at the expense of the entire population," saidJose Barrionuevo, director of emerging markets strategy atBarclays Capital, in a report.

"The reform is good for Brazil because it benefits the vastmajority of the remaining 177 million Brazilians."