Brazil Seeks Urgent Solution to Pay Pensions Without Delay

By Richard Mann, Contributing Reporter

BRASILIA, BRAZIL – At the risk of delaying payment of pensions and social benefits, an economic team is seeking a solution to the deadlock over additional credit that unlocks such expenses without violating the so-called budget “golden rule” which prevents the issuing of debt securities to cover current costs.

The government tries to tailor a way out of the rapporteur’s opposition, Deputy Hildo Rocha (MDB-MA), by endorsing an additional debt of R$248.9 (US$62) billion, which could further delay credit approval. An opinion should only be submitted in the first week of June.

It is a Technical and Political Problem

The voting that led to the withdrawal of the Council for Control of Financial Activities (Coaf) of the Ministry of Justice, contrary to Minister Sergio Moro, created a deadlock by showing that the government does not hold 257 votes in the House of Representatives on controversial issues – the amount needed to approve the credit.

Senator Davi Alcolumbre (DEM-AP), president of National Congress, has no provision for calling a plenary session, whose agenda is tied to 21 vetoes ahead of the credit.

Without this credit, the government has no resources in the budget to pay for these expenditures.

Settling these with money borrowed from debt securities is prohibited and would be a liability crime, susceptible to impeachment.

Unless National Congress expressly grants permission for this, the endorsement is exactly what is at stake now.

The first to suffer may be Continuing Benefit Conveyance (BPC) beneficiaries – the elderly and disabled individuals of low income – as well as the 2019/2020 Farming Plan.

Payment of old-age pensions from the INSS and family allowance program were also conditioned.

According to economists, without congressional approval, no unauthorized expenses should be paid.

The Court of Auditors of the Union (TCU) has also expressed itself in the past by prohibiting the granting of subsidies without prior budgetary authorization.

Although the situation leaves the government at a crossroads between liability crimes and defaulting pensioners and the needy, the Palácio do Planalto can lay the blame for the non-payment of benefits on National Congress for delaying the vote.

However, the DEM leader in the House, Elmar Nascimento (BA), states that the credit will be approved.

“You can’t play with economics. We’re going to have to win if there’s any difficulty. For the country, not the government,” he says.

Joice Hasselmann (PSL-SP), the government’s leader in Congress, even announced the voting on credit in the Mixed Budget Commission (CMO) next week, but Rocha dismisses this possibility.

He says he will only present his opinion one week after the economic team provides the information he has requested on the real gap in the 2019 golden rule.

This information must be provided by May, 29th. “Seven days after data submission, I will deliver the report,” says Rocha.

The government submitted the supplementary credit project anticipating that the source for the full payment of R$248.9 billion would be the issuing of new debt.

The Rapporteur, however, refuses to approve these terms as the treasury itself has already detected a minor shortfall in the golden rule of R$ 110.4 billion, through another available source of funds, such as the Central Bank‘s profits.

Government and congressional officials see two alternatives to the deadlock:

• One would be to approve a credit with permission for loans by issuing bonds in a smaller amount (for instance, R$148.9 billion) and leave the remaining expenses (R$100 billion) to a source of financing to be defined later. As a result, the economic area may relocate funds from other sources throughout the year without running the risk of defaulting on retirees and the needy.
• Changing the 2019 Annual Budget Law (LOA) granting the government greater flexibility in managing expenditure, would be another possibility.

A project underway to authorize payment of premium on INSS benefits could be used for this purpose. Subsequently, approving a credit equivalent to the actual need to issue debt securities would be sufficient to cover the shortfall in the golden rule.

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