Bolsonaro Lets Workers Dip Into Severance Fund to Boost Growth

(Bloomberg) -- Brazil’s President Jair Bolsonaro will allow workers to access cash from their severance funds, in an attempt to boost an economy teetering on the edge of recession.

Workers will be allowed to withdraw 28 billion reais ($7.4 billion) from their so-called FGTS savings fund this year and another 12 billion reais in 2020, according to an official announcement made Wednesday at the presidential palace in Brasilia. The government hopes the measures will increase GDP by as much as to 0.35 percentage points over the next 12 months.

“We are giving back to workers the right to take out their money,” Bolsonaro said.

While Brazilian assets have performed strongly this year, the economy shrank in the first quarter and risks tipping into recession in the second. Growth forecasts have been revised downward for five months and unemployment remains stuck in double-digits. As such the government is under pressure to find ways to juice growth. While Wednesday’s measures will hardly transform Brazil’s outlook, they may mean that the economy expands more 1% this year.

From September, workers will be able to take out as much as 500 reais from each account, active and inactive. From 2020, workers will be allowed to withdraw a certain percentage of their funds on an annual basis.

Rubem Novaes, the president of the state-controlled Banco do Brasil, said that the withdrawals are no substitute for the government’s agenda of structural reforms.

“The program is a bridge that allows the economy to keep going at a reasonable rate until we feel the effect of the reforms,” he said.

To contact the reporters on this story: Rachel Gamarski in in Brasilia at rgamarski@bloomberg.net;Flavia Said in Brasilia at fsaid7@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, Bruce Douglas, Walter Brandimarte

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