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Deal on pension reform reached

 By Jonathan Wheatley, Financial Times

 Aug 06, 2003

Brazilian government leaders in Congress said last night they had reached a deal that should enable approval today of a controversial reform of the public sector pensions system.

The reform aims to tackle a long-standing deficit in the system that has increased perceptions of risk among investors and prevented the government from lowering interest rates, an obstacle to faster economic growth.

Leaders of the ruling Workers party (PT) and their allies said they had secured the support of 380-420 congressmen, enough comfortably to ensure the three-fifths majority needed to pass the law, which requires making changes to Brazil's 1988 constitution.

But the government was forced to give ground on a number of key elements in the reform. A salary ceiling for state judges will be set at a higher level than the government proposed; retired workers receiving up to five times the minimum wage, currently R$1,200 (US$400) a month, will be exempted from social security contributions; and civil servants will be able to retire on full pay of up to 10 times the minimum wage.

President Luiz Inácio Lula da Silva, who took office on January 1, postponed a visit to Africa this week in order to oversee negotiations on the reform. He has intervened several times over recent weeks as investors have become frustrated by a lack of progress on the reform, which has been in Congress for several years.

The deal agreed yesterday stipulates that salary caps for state judges will be applied automatically rather than being subject to approval by state legislators, a condition demanded by state governors in exchange for their support.

Progress on reform has been marked by discontent among civil servants, many of whom retire on full pay far in excess of the new limits. Port officials and other public sector workers are on strike in protest; a strike by magistrates was narrowly averted last week.  

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