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  • Emerging Markets Debt Daily

    Brazil Steps up Pension Reform Efforts

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 05, 2019

    Brazil’s latest pension reform draft looks very ambitious, aiming for much higher fiscal savings than earlier versions. Mexico’s “extraordinary” measures to support the state-owned giant Pemex might weigh further on the government’s fiscal performance.

    In Brazil, details about a preliminary pension reform bill are out – and they look very ambitious. The leaked draft is broader than the version currently in the congress. It sets the retirement age at 65 years for both men and women (a big bone of contention among politicians), raises the minimum contribution period from 15 to 20 years, and includes members of the military and teachers. 10-year fiscal savings are estimated to be between BRL855.4B and BRL1.1T, which is higher than envisaged by President Michel Temer’s original 2017 plan and almost twice as high as his final watered-down proposal. Impressive!

    Meanwhile in Mexico, markets are bracing for President Andrés Manuel López Obrador’s announcement about “extraordinary measures” to support the recently downgrade state-owned giant Pemex.  According to President López Obrador, these will be mainly fiscal measures (e.g., lower tax payments) – which might benefit the company (bonds are up today), but will probably hurt the government’s finances. The 2019 budget already uses several “shaky” assumptions – hence the sinking feeling that this is not going to end well.

    Philippine inflation moved closer to the central bank’s target range, moderating more than expected in January (to 4.4% year-on-year). A high base effect and lower oil and rice prices should continue to push headline inflation lower in the coming months. With disinflation firmly on track (see chart below), the central bank should feel quite comfortable staying on hold in the foreseeable future.


    Chart at a Glance

    Philippine Disinflation On Track Chart

    Source: Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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