Considering that the social security reform is forwarded in Congress and that it was already approved in the first vote in the House of Representatives before the legislative hiatus, what would be the prognosis for the moment after the final approval in Senate and presidential approval?
Structural law changes usually bring results in the medium and long term. The social security reform will be no different; however, there is no doubt that the simple approval of the reform will have positive effects for the economy, and one still needs to identify the extent of the impact on public and private investments. I stick to the investments because I believe that Brazil’s new growth cycle will not be sustained by consumption. It is also important to emphasize that public investment, especially in infrastructure, will be extremely important for private stakeholders to make investment decisions.
Will the public sector be able to start a new investment cycle? I don´t think so. The text of the reform was impoverished, regarding the exclusion of states and municipalities making it impossible for any short-term restart of public investments. Government entities outside the reform, sooner or later, will need help from the Union. States such as Rio de Janeiro, Minas Gerais and Rio Grande do Sul (but not limited to these) will have great difficulty in meeting the basic demands of society. Without resources for sanitation, transportation and education there will be no environment to attract private investments.
Unfortunately, if the reform remains impoverished, the day-after feeling will be frustration by the loss of opportunity to reform all the entities at once, avoiding the fragmentation of negotiations by states and municipalities. If the agents understand that the problem of the public accounts will persist, the positive impact will be less than expected and claimed by the government itself.
Marcelo Fonseca is an economist and a partner of HLB Brasil.