Posts Tagged ‘pension reform’

S&P says won’t downgrade Brazil credit ratings — for now

August 16, 2017

AFP

© AFP/File | International credit rating agency Standard and Poors said Wednesday that it has decided not to downgrade Brazil’s sovereign ratings for the time being
PARIS (AFP) – International credit rating agency Standard and Poors said Wednesday that it has decided not to downgrade Brazil’s sovereign ratings for the time being, but may well do so next year if Latin America’s biggest economy does not sufficiently tackle its debt.

S&P Global Ratings said in a statement it had removed Brazil from its CreditWatch list, “where we had placed them with negative implications on May 22, 2017”.

Brazil’s long-term sovereign debt is currently rated “BB”, which is non-investment grade or “junk”, but S&P had placed it on a list for possible downgrade after president Michel Temer was nearly ousted in a corruption scandal.

Since then, however, “the political landscape is somewhat more settled as President Temer survived a vote — by the Federal Electoral Court (TSE) in June and by Congress in August — related to corruption charges,” the rating agency said.

“Meanwhile, the economy appears to have stabilized despite fluid politics, Congress passed a labour reform in July, and the government remains committed to advancing some pension reform,” it continued.

Nevertheless, S&P said it would keep the “negative” outlook on Brazil’s ratings.

That “reflects ongoing political challenges and the risk of a downgrade over the next six to nine months — given Brazil’s high and rising debt burden — should Congress fail to advance legislation that begins to reduce Brazil’s fiscal rigidities, which hinder deficit reduction and sustained moderation in spending growth,” it argued.

Brazil’s finance minister, Henrique Meirelles, said Tuesday that the government was raising its deficit ceiling for this year and 2018 because of a big drop in tax revenue, sluggish growth and other woes in Latin America’s biggest economy.

Brazil President Weakened by Graft Charge, Losing Fiscal Battle

August 12, 2017

Aug. 11, 2017, at 3:29 p.m.

Reuters

Image may contain: 1 person, sky and closeup

Brazil’s President Michel Temer reacts during a ceremony in Sao Paulo, Brazil August 8, 2017. REUTERS/Leonardo Benassatto REUTERS

By Anthony Boadle

BRASILIA (Reuters) – Brazilian President Michel Temer has burned through political capital fighting corruption charges and is struggling to push forward his economic agenda meant to rein in a gaping budget deficit.

Even allies in Congress now doubt he can achieve anything but watered-down measures, likely delaying any fix to Brazil’s fiscal crisis until the economy recovers from deep recession.

With continued deficits, Brazil risks further downgrades in its credit rating. It lost its investment grade two years ago, adding to the cost of financing mounting public debt.

In a sign of Temer’s failure to restore fiscal health, the government is expected to revise upward its 2017 and 2018 deficit targets on Monday due to falling tax revenues in an economy that is barely growing.

More pessimistic analysts worry the insolvency already faced by some Brazilian states that cannot pay employees or provide basic services will reach the federal government.

Temer had a window to pass a pension overhaul earlier this year, but it closed in May when allegations emerged that he condoned bribes in a taped conversation with the then CEO of the world’s largest meatpacker JBS S.A..”We are dancing samba at the edge of the precipice,” said Sao Paulo-based wealth manager Fabio Knijnik. “I don’t see the political class at all concerned with resolving this.”

The deeply unpopular president won enough backing in Congress on Aug. 2 to block a corruption charge that could have led to his suspension pending trial by the Supreme Court. To survive, he approved about $1.5 billion in pork barrel spending to keep lawmakers happy.

His closest ally in Congress, the center-right Democrats Party of Speaker Rodrigo Maia, does not believe Temer has the 308 votes, or three-fifths of the lower chamber, needed to pass pension reform, the key measure in his fiscal rescue plan.

Speaking in Rio on Friday, Maia said Temer’s political troubles and lower-than-expected tax revenues had created the crisis. He said Brazil had no alternative but to seek whatever pension fix it could, given Congress would not raise taxes.

Congressman Efraim Filho, the Democrats whip, told Reuters Temer must dilute the pension bill to get it past Congress. He said the measure had to be stripped down to its most important provision, a minimum age for retirement of 65 years for men and 63 for women in a country where people only work on average until age 54.

CRUMBLING COALITION

Temer’s government coalition is in disarray. Parties who stood by the president are now demanding they be rewarded with cabinet positions, such as the big-budget Cities Ministry. It is now controlled by the Brazilian Social Democracy Party (PSDB), which split over whether to abandon the scandal-plagued president.

Until they get their way, the allies at the core of his coalition have said they will not put his proposed pension bill to the vote. Maia said the “climate” was not right to move to a floor vote and the bill could languish and miss a legislative window likely to close in December as an election year approaches in 2018.

The government has already made concessions on the pension bill provisions that will reduce planned fiscal savings by up to 25 percent in 10 years and nearly 30 percent in 30 years, according to Finance Minister Henrique Meirelles.

The pension overhaul is vital for Brazil to comply with a 20-year spending cap that was Temer’s first move to restore fiscal discipline, albeit without a full impact on accounts until 2019.

“That ceiling was like saying you are going on a diet two years from now,” said Daniel Freifeld of Callaway Capital, a Washington D.C.-based investment firm.

(Reporting by Anthony Boadle; Editing by Andrew Hay)