Optimism about Brazil has been running high. Latin America’s largest economy has announced free-market reforms under right-wing president Jair Bolsonaro. Brazilian stocks have already risen rapidly in anticipation.
They have gained 13% in dollar terms in four weeks, beating the MSCI Emerging Markets and the S&P 500, notes Kenneth Rapoza on Forbes. Last year, as Bolsonaro’s election was gradually priced in, Brazilian stocks gained 10%.
The centrepiece of the reforms consists of changes to pensions, a severe drain on state expenditure. Public sector workers can currently retire after only three decades on the job. They can finish working at any age if they have paid into the system for 35 years, or 30 for women. The plan now is to increase the retirement ages to 62 years for men and 57 for women.
Brazil’s economy minister Paulo Guedes has promised the gradual overhaul will save $350bn over ten years and insists that it will be approved “within five months”. Tax reforms and the privatisation of state-held companies would follow.
“Guedes is promising the market the moon,” as Rapoza puts it. But he is unlikely to deliver. It’s far from clear the government can muster the three-fifths majority needed in Congress. If the effort fails, Brazilian assets may return to earth just as quickly as they have taken off.