Military privileges jeopardize Brazil’s pension reform

Author

Gustavo Ribeiro
March 21, 2019 • Reading Time: 7 minutes

In today’s issue: Military privileges jeopardize Brazil’s pension reform. Jair Bolsonaro’s fall from grace among middle-class voters. House approves full foreign ownership of airlines. 

Military privileges jeopardize Brazil’s pension reform

When President Jair Bolsonaro presented his pension reform bill—the harshest and most ambitious in recent memory—he said everyone would have to make sacrifices. But yesterday, when he presented the plan to overhaul military pensions, it was clear that the burden won’t be shared equally. Mr. Bolsonaro’s proposal creates savings of BRL 97bn in 10 years—but was accompanied by a bill creating a system of training bonuses for the military, which reduces total savings to only BRL 10.4bn over the next decade. The core changes are:

  • Minimum length of service goes from 30 to 35 years;

  • The rate of pension contributions paid will rise to 10.5% (from 7.5%), over a transition period of 3 years; Bonuses for training and “availability” would raise monthly incomes of high-ranked officers by up to 76%.

  • The military pension system was supposed to unclog discussions about the general reform in Congress—the government’s top priority for 2019. But it will actually become a problem, as congressmen could feel entitled to benefit lobbying groups that want the same privileges apparently reserved for the Armed Forces.

To make matters worse, House Speaker Rodrigo Maia has been less and less discrete in showing his dissatisfaction with how the administration is handling the pension reform issue. And that comes when Mr. Bolsonaro’s popularity rates have taken a drastic hit (more below), which reduces the government’s leverage in negotiations.

Members of centrist parties have talked about the possibility of changing the military pension reform bill, “doing what the government wasn’t courageous enough to do,” and vetoing the career restructuration program. That, however, would essentially be a declaration of war.

Jair Bolsonaro’s fall from grace among middle-class voters

Elected in a moment of intense polarization, President Jair Bolsonaro’s popularity was never off-the-charts. His approval rate, though, has fallen further—especially among middle-class and low-income voters. In just two months, 3 of every 10 people who supported the administration now don’t believe the president is doing a good job. Less than 3 months into his term, Mr. Bolsonaro has popularity numbers on par with presidents entering their second term—when they have years of political wear and tear on the belts.

No less than 53% of voters in the Northeast (the only region where Mr. Bolsonaro didn’t win the majority of votes in October 2018) and in big urban centers don’t believe in the president’s capacity to lead the country. White, evangelical, rich voters (especially in the South and Southeast regions) remain faithful to the president.

This latest poll doesn’t elaborate on why voters have rated the Bolsonaro administration as either good or bad. Other polls (which haven’t been made public), however, point to at least four reasons for this fall from grace: the president’s connections to urban militia groups in Rio; the corruption scandals involving his son, Senator Flávio Bolsonaro; the lack of measures to reduce violence rates; and the president’s overly aggressive tweets.

House approves full foreign ownership of airlines

Brazil’s lower house passed a bill allowing foreigners to own up to 100% of voting capital in airlines—confirming a decree signed in December by former President Michel Temer (the bill now requires a Senate vote). Previously, the limit was of 20%. The government celebrated the change, stating it will stimulate investments, with 12 potential new airlines operating in Latin America’s largest economy.

Experts, however, argue that allowing foreigners to be the sole owners of airlines in Brazil wouldn’t necessarily create a more competitive environment, nor would it bring down airfares.

“The problem for Brazilian airlines has more to do with the cost of doing business in Brazil than it is to an alleged lack of competition. Companies controlled by foreigners would have to obey the same legislation and work in the same environment as the Brazilians—which would increase their operational cost in the same way,” says Jorge Eduardo Leal Medeiros, a specialist in infrastructure and a professor at the University of São Paulo.

Brazil will become one of the few countries where foreigners can control up to 100% of the airline industry. Such is the case of India, Chile, and Colombia, for instance. But countries like the U.S., Canada, and the United Kingdom set the limit at 25 percent.

What else you should know today

  • Infrastructure. One number gives a dimension of how poor Brazil’s airport infrastructure remains: domestic flights take 8% more time to finish their trips than what planemakers estimate for their aircraft. That’s due to a lack of boarding bridges and take-off lane availability. In the U.S. the gap between how long airplanes take—and how long they should take—to finish a trip is of about 1%.

  • Interest rate.To no surprise, the Central Bank kept the Selic benchmark interest rates at 6.5%, noting that the economic recovery remains sluggish and that inflation risks are no longer skewed to the upside. The bank’s monetary policy committee was cautious about reducing the Selic rate in the near future—as low interest rates are sufficient to stimulate the economy. The government must also bring balance on the fiscal side

  • Supreme Court.The Federal Police team that runs a secret investigation into online attacks against Supreme Court justices has already identified suspects and will start taking measures. Meanwhile, senators have presented a bill to limit tenures at the Supreme Court to 8 years—going against the principle according to which life terms keep justices insulated from political pressure, allowing the court to serve as a truly independent branch of government.

  • Anti-crime law.Despite figuring among the administration’s goals for its first 100 days, the anti-crime bill presented by Justice Minister Sergio Moro has taken a back seat. House Speaker Rodrigo Maia decided to create a group to analyze how Mr. Moro’s proposal could merge with existing bills—even calling the bill a “copy-paste job.” The move has postponed any discussions around the bill for at least 90 days—making it impossible for the government to meet its goal in its initial timetable.

  • Diplomacy.After visiting with Donald Trump, Jair Bolsonaro will meet with Chilean President Sebastián Piñera in Santiago on Saturday. His visit has sparked controversy, with the heads of both congressional houses deciding to boycott an official luncheon to honor Mr. Bolsonaro. “He defends [former dictator Augusto] Pinochet—and Pinochet fans are not welcome in Chile,” said Senate President Jaime Quintana.

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