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Brazil: Stocks hit record high before pension reform vote

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[RIO DE JANEIRO] Brazilian stocks closed at a record high on Wednesday on optimism that President Jair Bolsonaro's ambitious pension reform bill will pass a crucial first vote in Congress.

A favourable result in the lower house would be a boon for Bolsonaro, whose signature economic policy has faced stiff resistance from trade unions and a hostile Congress.

The proposal to introduce a minimum retirement age and increase contributions over a longer period of time is seen as crucial to Mr Bolsonaro's ability to deliver on other promised measures to shake up Latin America's biggest economy that is on the edge of recession.

As lawmakers held final debates on the bill, the benchmark Ibovespa index rose 1.23 per cent to close at a historic high of 105,817.

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A vote was expected in the evening local time.

The lower house will hold a second vote before the bill can move to the Senate for two votes.

Changing the pension system requires three-fifths of Congress to support a constitutional amendment.

The reform is expected to generate savings of around a trillion reais (S$361 billion) over 10 years.

Bolsonaro has warned Brazil's generous pension system would bankrupt the country if the changes were not adopted.

In 2018 Brazil's pension deficit - including public, private, state, municipal and military - reached 362 billion reais, which is the equivalent of 5.5 per cent of GDP.

In 2011 it was 2.1 per cent.

The deterioration was largely due to the 2015-2016 recession, from which the country is still struggling to recover.

There has been growing consensus in Congress that pension reform is necessary, particularly as the population ages.

About 9.2 per cent of Brazil's 209 million people were over the age of 65 last year, official data show. In 2060, it is projected to be 25.5 per cent.

Fitch Solutions estimates Brazil's "pensionable population has more than doubled in relative size since 2000," going from 5.1 per cent of the population to an estimated 8.9 per cent last year.

While pension reform is not expected to solve Brazil's economic woes, analysts say it would help repair the country's finances.

"If the current pension reform passes, it would take Brazil's public debt ratio off its current unsustainable upwards trajectory," William Jackson of Capital Economics said on Tuesday.

The International Monetary Fund estimates Brazil's public debt to be 88 per cent of Gross Domestic Product, one of the largest among its peers.

"In the absence of reform, the debt ratio would probably breach 100 per cent of GDP by the early 2020s," Mr Jackson said.

AFP