Re-elected Brazilian President Dilma Rousseff delivers a speech following her win, in Brasilia on October 26, 2014. Leftist incumbent Dilma Rousseff was re-elected president of Brazil, the country's Supreme Electoral Tribunal said, after a down-to-the-wire race against center-right challenger Aecio Neves. Rousseff, who had 51.45 percent of the vote with 98 percent of ballots counted, was declared the run-off winner. AFP PHOTO / EVARISTO SA        (Photo credit should read EVARISTO SA/AFP/Getty Images)

Brazil’s overburdened pension system has long struggled with one particular problem: “sugar daddies”, or more precisely, the situation where young women marry men old enough to be their grandfathers so they can lay claim to their pensions when they die.

Up until last week, Brazil had some of the most generous retirement rules in the world, allowing the spouses of deceased workers to receive almost their entire pension for the rest of their lives, even if they remarried. The system made marriage with elderly men so attractive, officials referred to it as the “Viagra effect”.

However, that could all change after President Dilma Rousseff cut annual unemployment and pension benefits by R$18bn ($6.7bn) last week as part of a package of austerity measures to kick off her second term in government. Under the rules, spouses will receive only 50 per cent of their deceased partner’s pension and those under 44 will only be able to collect the payment for as little as three years.

The cuts were the latest in a series of market-friendly moves from Ms Rousseff, a former leftwing guerrilla, to correct the country’s deteriorating fiscal accounts, boost growth and stave off a possible credit rating downgrade to junk status.

Economists say Brazil could announce its first primary budget deficit on record for calendar 2014 following the toxic combination of populist tax incentives and state interventionism of Ms Rousseff’s first term. The economy, which grew at 7.5 per cent in 2010, likely expanded 0.1 per cent last year.

“More than anyone, I know that Brazil needs to start growing again,” Ms Rousseff said during her inauguration speech last week following her election win in October against Aécio Neves of the business-friendly PSDB party. “The first steps are to adjust the public accounts, increase domestic savings, expand investments and raise productivity,” she said.

Aside from cutting benefits, Ms Rousseff has also wooed investors by appointing former banker Joaquim Levy as finance minister, raised interest rates, and cut by half the central bank’s vast currency intervention programme that had been blamed for creating distortions in the economy.

Last month, Ms Rousseff even promised to float part of Caixa Econômica Federal, the state-run bank responsible for administering the Bolsa Família social welfare programme, shocking adversaries and supporters alike. Throughout her election campaign, her Workers’ Party (PT) went to great lengths to demonise bankers, even suggesting that greater independence for the sector from state-control would impoverish ordinary Brazilians.

“With each new measure that is announced it becomes even clearer that the recent elections were won with lies,” Mr Neves wrote on his Facebook page. The measures have also proved unpopular with her own party, with only 6,000 turning out to see Ms Rousseff’s inauguration in Brasília according to local media, compared with the 30,000 predicted by the PT.

While analysts have welcomed the politically risky measures and Ms Rousseff’s apparent willingness to abandon her previous heterodox policies, they say it could take years to repair the damage of her first term. Many also doubt that Ms Rousseff has the conviction to see the measures through over the next four years, especially if the necessary policy adjustments risk increasing unemployment.

“Overall, 2015 will likely mark the fifth consecutive year of disappointing growth and headline inflation above 5.5 per cent,” says Alberto Ramos, economist at Goldman Sachs, adding that external challenges such as lower commodity prices could make Brazil’s task even harder.


Ms Rousseff may also struggle to get the congressional support she needs to push through the most unpopular measures, says João Augusto de Castro Neves of Eurasia Group.

Faced with divisions in her own party and opposition from the PMDB, the PT’s most important ally, Ms Rousseff does not have the political capital that her popular predecessor Luiz Inácio Lula da Silva had in 2003 when he proposed similar cuts.

“This political liability will become particularly acute in the second half of 2015, when the economic slowdown will have likely impacted the president’s approval ratings,” says Mr Castro Neves.


Ms Rousseff only managed to carry out last week’s benefit and pension cuts by using a so-called ‘provisional measure’ — a controversial legal tool designed for emergencies that allows the president to enforce immediate changes without prior congressional approval. However, over the next two months Congress can still vote against the new rules and prevent them from being turned into law.

While many PT supporters and swaths of elderly single men will be hoping that Congress will do just that, economists say the reforms and other fiscal adjustments are worth fighting for.

“[It’s] not an easy agenda . . . but an agenda that would contribute to rebalance the economy and unleash the trapped significant growth potential of the economy,” says Mr Ramos.

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