Softer Pension Proposal Leads to Brazilian Stock Slip

Reductions to plan made to ensure December Congressional vote.

Brazilian stocks fell Monday on the possibility of the government further loosening pension regulation for Congress approval. .

After facing strong opposition from lawmakers, President Michel Temer’s administration agreed last week to weaken the regulations in its proposed plan to streamline the social security system.

The new proposal would garner roughly 60%  fiscal savings over the government’s original proposal. The prior version, which had higher regulations, projected 75% fiscal savings over the original proposal.

According to Reuters, the bill is seen to investors as a necessary effort to help stop the growing public debt and allow the government to meet fiscal targets. To gain approval in the lower house next month, Congress has acknowledged the possibility of a less restrictive plan.

According to a report from Magliano Corretora brokerage, analysts at the firm expected a surge in stock market volatility until the reform is voted on in early December.

As a result of volatility speculation, the benchmark Bovespa index slipped 1.2% Monday due to lenders Banco do Brasil SA and Banco Bradesco SA, as well as blue chips such as miner Vale SA. Crude oil prices fell lower due to state-controlled oil company Petróleo Brasileiro SA. In addition, the Brazilian real and the Mexican peso benefitted from growing concerns about whether the US government’s tax overhaul implementation weakened the dollar’s currency globally, Reuters reports. This helped the real grow 0.4%, in line with the peso.

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