Billions of Dollars on the Line With Brazil Bills Set to Expire

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Forget pensions: another fiscal timebomb is about to go off in Brazil as investors and government officials remain focused on efforts to reform the social security system.

Government decrees worth billions of dollars in much-needed revenue will expire on June 3 unless Congress ratifies them. Weeks of debate on a proposed pension reform have diverted lawmaker attention from bills that cut the number of ministries, facilitate the privatization of public sewage companies and tackle social security fraud. The administration also needs the legislature to approve urgently debt issuance to finance current spending.

Pledges to cut debt and boost government accounts represent the centerpiece of President Jair Bolsonaro’s economic policy and a pillar of his support among investors. The government has proposed legislation that would save roughly one trillion reais ($250 billion) in 10 years by toughening access to pensions, though that bill has been dogged by political missteps and delays. On top of that, officials now face a tight timetable on the other fiscal measures, and will likely have to offer concessions in return for their approval.

“If Congress doesn’t approve these bills, it will be a major defeat for the government,” said Gabriela Fernandes, the chief economist at investment firm Gauss Capital.

While it is not yet clear how much the reduction in the number of ministries will save the state, the bill to tackle fraud in the social security system should result in an extra 10 billion reais over 12 months, according to the government’s own calculations. Meanwhile, the Bolsonaro administration hopes to attract up to 500 billion reais in private sector investment in Brazil’s sewage system by 2033.

Congress has already postponed approval of the three bills once and Brazilian law requires their approval or expiry. Cabinet Chief Onyx Lorenzoni insists that there is no chance of the decrees becoming invalid before the government takes action. “We’re going to approve these bills within the time limit, no worries,” he said on 8 May. To do so, however, may require costly compromises.

Already the government has wavered on its ministry-cutting plans, announcing its intention to recreate the cities ministry and use the portfolio to reward political allies. But even members of Bolsonaro’s own PSL party are not sure that this will be enough. “I’m really hoping that everything goes well and the decrees don’t expire, but I can’t deal with this on my own,” said Waldir Soares de Oliveira, the PSL leader in the lower house.

The economy ministry is also worried that Congress hasn’t approved a bill that would allow the government to issue bonds worth 248 billion reais to pay for current spending, despite the fact this would violate Brazil’s “Golden Rule” -- that debt can only be used for investment. Officials from the administration say they need the bill approved by June or they run the risk of not having enough money to pay social security in the second semester.

“The government didn’t concern itself with creating a base to allow its lawmakers to face down these votes,” said Rafael Cortez, a political scientist from Tendencias Consultoria.

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