Long-Awaited Brazilian Pension Reform Reopens Doors for US Investors Ahead of US Secretary Wilbur Ross’s Trip to Brazil - Global Trade Magazine
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  July 29th, 2019 | Written by

Long-Awaited Brazilian Pension Reform Reopens Doors for US Investors Ahead of US Secretary Wilbur Ross’s Trip to Brazil

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  • Brazilians are not the only ones who should celebrate the outcomes of this first round of voting.
  • Today’s Brazil is open to investments and to competition; the US private sector should rejoice in these changes.
  • Does the Pension Reform solve all of Brazil’s problems? Far from it.

Nearly two weeks ago, Brazil’s House of Representatives approved, in a first round of voting, a long-debated reform of the country’s convoluted pension system. For the millions of Brazilians following the Reforma da Previdência (Pension Reform), this first round of approvals is a positive step forward and one that ensures a reasonable forecast for the estimated economic impact this will have on Brazil over the next decade.

But Brazilians are not the only ones who should celebrate the outcomes of this first round of voting. For US investors, the House’s approval of Brazil’s pension reform is a green light for far greater opportunities to come. Ahead of US Secretary of Commerce Wilbur Ross’s trip to Brazil in the coming week, this move will also help the US evaluate how domestic reforms in Brazil can facilitate US-Brazil bilateral commercial engagement.

The Pension Reform, as it stands, is expected to help revamp Brazil’s costly pension system, bolster Brazilian public finances and bring budget numbers down to a sustainable level within the next years. More importantly, it will be a trigger for much-needed tax reform. Implementation of both pension and tax reforms would be a real turning point for the country’s economy.

Though Brazilians and investors are right to celebrate this progress, a number of additional hurdles lie ahead for the Reforma da Previdência before it is approved. Over the coming weeks, the reform will have to pass through a vote by the Special Committee, a second round of approvals by the House, and two rounds of approvals by the Brazilian Senate.

Nevertheless, for President Jair Bolsonaro’s economic team, headed by economist Paulo Guedes, this is a victory. Since Bolsonaro’s visit to Washington in March 2019, companies interested in investing in Brazil have kept their eyes peeled for concrete outcomes from Brazil’s new administration. This is one such outcome.

Does the Pension Reform solve all of Brazil’s problems? Far from it. The text itself is not perfect and can be (in fact has been) criticized, especially as it pertains to the benefits provided for different categories of workers. But despite its imperfections, foreign investors can take this step forward as a sign that the Brazilian government is committed to making difficult decisions to improve its economic circumstances. There is now an opportunity for Brazil to embark on a growth cycle.

Relying on the assumption that the reform will pass, the Brazilian real has strengthened in the past weeks. This will foster investments in the middle to long term. In addition, it is important to note the government has encouraged the expansion of actions related to the Investment Partnership Program (PPI) in an effort to create a more business friendly and less bureaucratic environment for foreign investors in several sectors of the economy.

Over the long term, in addition to opening a door to other relevant and necessary legislative changes, the approval of the Pension Reform shows Brazil’s commitment to implementing broader necessary reforms, a positive sign to the members of the Organization for Economic Cooperation and Development (OECD) currently evaluating Brazil’s request for accession.

Along with the excitement around the approval of the pension reform text in the past weeks, Brazil can count on another recent victory: the signing of the Mercosur-European Union Agreement. After twenty years of negotiations, under the leadership of Mauricio Macri and Jair Bolsonaro Mercosur reached a final and comprehensive trade agreement with the European Union on June 28, sending a message to the world that Mercosur’s member countries are committed to the multilateral trading system and are looking to expand their trade relationships.

Today’s Brazil is open to investments and to competition; the US private sector should rejoice in these changes. The Brazilian House’s approval of the Pension Reform is at the heart of changes deemed necessary to reduce red tape and improve business performance in Brazil. As President Bolsonaro marks 200 days in office, investors should be ready to once again seize on the opportunities Latin America’s largest economy has to offer.

 

Renata Vargas Amaral is a Visiting Scholar in the Trade, Investment and Development Program at the Washington College of Law at American University. She is the founder of Women Inside Trade.

 Roberta Braga is an Associate Director at the Adrienne Arsht Latin America Center of the Atlantic Council

 With Valentina Sader, Program Assistant at the Adrienne Arsht Latin America Center of the Atlantic Council


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