By Camden Kelliher
A conservative wave washed over Brazil last Sunday, October 28th 2018, when Brazilian voters electedJair Bolsonaro as their next President, giving him 55.2% of the total vote. The media has nicknamed Bolsonaro, “The Trump of the Tropics”, for his right wing politics and nationalist agenda. However, President-Elect Bolsonaro and President Trump are vastly different in one regard: Bolsonaro has publicly admitted that he knows very little about the economy. While humility may be an admirable trait, the Brazilian Constitution does grant the President the authority to initiate legislation on tax and budgetary matters. This means that there is an expectation that Bolsonaro will do something about Brazil’s declining economy and increasing deficit. Like many countries today, one of Brazil’s biggest issues is the amount that it spends on its pension program. The average retirement age in Brazil is 54, with an average of 70% of the retiree’s final salary being paid out in the pension program. In comparison, the average retirement age in OECD countries is 65. As a result, the program accounts for about one third of government spending in Brazil and 9.1% of GDP. This is eerily similar to the pension program that contributed to the debt situation in Greece.
Outgoing President Michel Temer attempted to push pension reform through before leaving office, but failed to garner support in the National Congress of Brazil and faced skepticism due to corruption charges. So, where does that leave Brazil? President-Elect Bolsonaro seems to think it will come from his top economic advisor, Paulo Guedes. Guedes, likely to be Minister of Finance, lead the economic section of Bolsonaro’s campaign and offers an economic perspective that is quite different from the rhetoric of the Bolsonaro campaign. While Guedes announced that President-Elect Bolsonaro will focus on pension reform, the two have offered no substantive plan on how to do so. Oh, and Guedes is currently being investigated for fraud dealing with the pension funds of state-run companies.
Corruption charges aside, at the moment Guedes seems to be Brazil’s best hope for financial reforms. His general economic approach is fairly straightforward, as he has stated that he wants to, “reduce public debt by 20 percent through privatisations and spending cuts.” However, spending cuts would likely mean reducing spending on the pension program, as it is such a large part of the Brazilian budget. There are a multitude of policy factors that would play into this decision for President-Elect Bolsonaro and his Minister of Finance, including the consideration of re-election in four years. This is heightened by the fact that 27,541,731 Brazilians are older than 60, which is approximately 13% of the population. However, this does not seem to be a concern, as President-Elect Bolsonaro urged the current administration to push pension reform through prior to his inauguration in January. One of the biggest components of Temer’s original plan was to set a minimum retirement age at 65 for men and 62 for women. Interestingly, though, there seems so be some confusion as to what Bolsonaro and his future administration actually want. Future chief of staff, Onyx Lorenzoni, said in a radio interview that pension reform should not be expected until next year. Guedes echoed that the pension reform has a political element, and granted deference to Lorenzoni on those matters.
So, at this point, it seems like an understatement to say that the pension issue in Brazil is unresolved; but if all else fails, the pension problem seems to be on Guedes’s shoulders. How he plans to fix it is also unclear but, for Brazil’s sake, it better be good.