Today, the government will present the pension reform to Congress, starting a lengthy, politically tense process. It comes after President Bolsonaro’s first political crisis (the Secretary General was fired on the back of corruption allegations). The constitutional bill needs to gather a 60% majority in both houses of Parliament. Given Congress’ fragmentation, Bolsonaro’s lack of a stable coalition and confusing communication we do not expect the reform to be passed before H2 2019. Besides, the final reform is likely to be a watered-down version of the initial one; as of now it aims at saving some USD270bn in ten years in public funds by raising the minimum retirement age to 65 (men) and 62 (women) and shifting to a capitalization model (each individual contributes for their own retirement). At the same time, market and consumer optimism is at record highs, decoupling from hard data. Political gridlock or a disappointing reform could bring back market volatility and higher borrowing costs, as we warned last fall.
