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Brazil - From stability to growth through public employment reform (Vol. 2) : Annex (English)

Tight money and a loose fiscal stance have led to growing pressures in Brazil. Substantial foreign exchange reserves, a credible privatization program and record of policy management so far make the risks manageable in the short to medium term. But these risks could be further reduced by changing the policy mix. High real interest rates, a strong exchange rate and a weak fiscal stance have undesirable consequences, beyond the growth of indebtedness. Sustained fiscal adjustment is the main policy change needed; this should take the form of reduced government spending, specifically, payroll expenses (public wages and pensions). Efforts should focus on reducing public-private differences. Sustainably reducing payroll spending mainly implies lowering salaries, pensions, and employment and delinking pensions from salary adjustments, enforcing working hour regulations, reducing salaries, and keeping salary increases small. Separation programs for public administration should be redesigned and expanded while separation programs for public enterprises can be made less generous. Long-term fiscal sustainability requires constitutional reform. Measures to reduce disparities between the public and private sector pensions are the most beneficial over the longer term from fiscal, efficiency, and equity viewpoints. Proposed constitutional changes are being monitored as a sign of the government's commitment to fiscal adjustment.

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Brazil - From stability to growth through public employment reform (Vol. 2) : Annex (English). World Development Sources, WDS 1998-2 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/934621468744243264/Annex