Federal security intervention in Rio jeopardises Brazil’s pension reform

Federal security intervention in Rio jeopardises Brazil’s pension reform

The Brazilian Lower House was expected to vote on pension reform on February 19, however due to a new security intervention decree signed by President Temer, security issues in Rio will take priority in the Lower House and Senate for a vote early next week. The intervention not only puts pressure on the vote date for pension reform, but may also prevent it from happening.

On Friday, February 16, President Michel Termer signed a decree for a federal public security intervention in the state of Rio de Janeiro. The intervention gives the Armed Forces responsibility for the Civil and Military Police of Rio in the fight against organized crime and gangs. The situation in Rio deteriorated last year after shootouts between drug dealers in competing favelas and found new victims during the Carnival. Over the holiday, there was an alarming increase in assaults, robberies, and looting, which resulted in the death of three policemen. 

The governor of Rio stated that there was indeed a lack of strategic planning for security during the Carnival as he welcomed General Walter Souza Braga Netto of the Eastern Military Command, the military leader assigned to Rio. Braga Netto was one of the people in charge of security during the 2016 Olympics. The main objective of the intervention is to re-establish order and use external resources since the state of Rio has not been able to contain the rise in crime. The intervention  is expected to last until December 31, 2018, however dates have not yet been confirmed.

While the intervention is already in force, the decree still needs to be approved by the National Congress by a simple majority vote. It is expected that the decree will be voted on in the Lower House between Monday (19) and Tuesday, then move to the Senate to be voted on between Tuesday (20) and Wednesday.

Pension reform (PEC – Proposed Constitutional Amendment) was originally scheduled for a vote on Monday, February 19, but in this case the intervention decree would take priority and bump the pension vote for the last week of February. However, it becomes unclear if pension reform will have grounds for approval even if is able to get the necessary votes. According to the law, during a federal intervention, the Federal Constitution cannot be altered, which is exactly what pension reform would do.

The only possibility to allow the pension reform vote to happen next week is to suspend the intervention before the vote and resume it after. While President Temer is confident that the intervention will not stop pension reform negotiations and a vote, Rodrigo Maia, the President of the Lower House, disagrees.

Maia stated that it would be very difficult to vote on pension reform next week if the decree for federal intervention in Rio is added to Congress’ agenda. If that is the case, pension reform will likely be put to vote in the last week of February – its last chance during the Temer presidential mandate. It is highly unlikely that the vote will be pushed to March since it would not be a well liked decision for congressmen in an election year. For now, it still doesn’t seem like the reform would have the necessary votes to pass.

Pension reform is deemed essential to alleviate Brazil’s fiscal deficit and to avoid another credit rating downgrade. Investors are watching closely to see if the pension reform will be approved this year, as it would signal credible economy recovery. The Brazilian stock exchange has spiked every time pension reform was placed in the Lower House’s agenda. If the reform is not approved now, it will have to wait until the next president is elected.

Categories: Latin America, Politics

About Author

Lorena Valente

Lorena Valente is an Associate at Promontory Financial Group, an IBM company. Previously, she was a Consultant for the World Bank Macroeconomics and Fiscal Management Brazil Team. She has also held positions at the Inter-American Development Bank, Albright Stonebridge Group, and McLarty Associates where she performed political and economic risk analysis for Latin America, with a special focus on Brazil. She earned her MA in International Economics and Latin American Studies from Johns Hopkins SAIS, and her BA summa cum laude in Political Sciences from the George Washington University. Originally from Brazil, she speaks Portuguese, Spanish, and English. *Views and opinions expressed are the sole responsibility of the author and are not endorsed by Promontory.