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SAO PAULO, Nov 30 (Reuters) - Efforts by Brazilian states to renegotiate debt with the federal government and sell off stakes in public companies may prove too little, too late to prevent their public pension woes sparking Brazil's next fiscal crisis, a senior economist told Reuters.
Marcos Lisboa, who served as the Finance Ministry's chief economist under former President Luiz Inácio Lula da Silva, said the key to putting states' finances on a sustainable path was root-and-branch reform of the costly public pension system.
President Michel Temer's center-right government has promised a long overdue reform of the retirement system for federal employees - which offers far more generous payments than private sector plans.
However, efforts by his government to impose pension reforms on cash-strapped state governments - in return for help in alleviating their budget difficulties - have been rebuffed.
Lisboa said that, unless Temer could strike a deal with governors and lawmakers, Brazil faced years of stagnant growth and a resurgence in its fiscal woes following the 2018 presidential, state and legislative elections.
"State governments need to deal with retirement spending or the crisis will be back with a punch later," Lisboa, the president of São Paulo business school Insper, said in a Tuesday interview.
Brazilian states, particularly oil-dependent Rio de Janeiro, are struggling to fund public pensions as the worst recession in decades hammers tax revenues.
A failure by states to plug pension gaps could force the federal government to step in and pay their bills, a move that would undermine efforts to curb national debt and recoup investor trust.
Some states have turned to selling stakes in state-owned utilities and other assets to fund the gap. Finance Minister Henrique Meirelles has raised the possibility of allowing Rio de Janeiro to issue debt backed by future oil revenues.
Lisboa warned that relying on such stop-gap measures instead of structural reforms would be repeating mistakes that helped drive Brazil into its current economic crisis.
"It's hard to avoid the interpretation that many want to postpone dealing with the problems until 2019," he said, referring to the year when new governors will take over after federal, state and legislative elections.
While Brazil's stocks and currency have rallied on Temer's efforts to limit federal spending, they have yet to translate into economic growth.
Gross domestic product (GDP) shrank 2.9 percent in the third quarter versus the year before.
Lisboa, who helped design Brazil's Bolsa Família welfare program, said there has been an exaggeration in market optimism towards Brazil.
"Either Brazil tackles structural issues involving states and the federal government... or it will become a bigger version of Rio de Janeiro," he said, referring to the Brazilian state which declared a financial emergency in June. (Reporting by Bruno Federowski and Luiz Guilherme Gerbelli; Editing by Andrew Hay)