World Economy

Brazil Cuts Pension, Benefits to regain investor confidence

Brazil Cuts Pension, Benefits to regain investor confidenceBrazil Cuts Pension, Benefits to regain investor confidence

The Brazilian government said it will limit unemployment and pension benefits, in a move that aims to shore up depleted finances and regain investor confidence.

Incoming planning minister Nelson Barbosa said in a briefing that the measures would save the government up to $6.7 billion (18 billion reals) a year or 0.3 percent of Brazil’s gross domestic product next year, Reuters said in a report.

The measures, effective immediately via a presidential decree, could prove unpopular for President Dilma Rousseff, who vowed to maintain workers’ benefits during her successful re-election campaign for a second term that starts on Thursday.

A rapid deterioration of Brazil’s finances after years of heavy public spending and hefty tax cuts has put pressure, however, on Rousseff to introduce austerity measures to avoid losing its coveted investment credit grade.

The measures include an increase in the time a worker needs to be employed before they can request jobless insurance and a reduction in the payment of widow’s pensions, as well as a number of restrictions to avoid fraud.

“There are many distortions in these programs. For them to be sustainable we need to make these changes,” Rousseff’s chief of staff, Aloizio Mercadante, told reporters in Brasilia.

Brazil has some of the world’s most generous unemployment and pension benefits, which analysts say represent a huge fiscal liability for a country that has more young workers than retirees.