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Brazil's Lula: Pension-Reform Plans Should Stay Unchanged

By Terry Wade, Dow Jones

  July 14, 2003

SAO PAULO - Despite signs he might accede to pressure to water down proposed pension reforms, President Luiz Inacio Lula da Silva says his government's proposal to reform the nation's retirement funds should remain unchanged.

"The best thing for Brazil" is for the existing proposals to be adopted in their entirety, he told the BBC over the weekend while in London on a European tour.

Many federal government workers went on strike last week to protest the reforms, which would do away with existing benefits like retiring at full salary and receiving pension benefits tax-free.

Lula's administration briefly said it would alter the reforms to placate the striking workers, but that touched off outcries from governors who had backed the reforms and the government then flip-flopped. This week Lula's administration will face key debates on the issue in Congress.

Combined deficits in Brazil's social security system and pension funds account for about 5% of gross domestic product. Wall Street is keen to see the deficit- narrowing reforms passed, as they would help cut Brazil's risk profile.

Besides touting his reforms plans, Lula told the BBC interest rates will fall "systematically" now that inflation is under control. Brazil's benchmark interest rate of 26% is among the highest in the world, but the central bank is expected to loosen monetary policy later this month amid sluggish economic growth and improved price stability.

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