Brazil's president says pension reform will only apply to federal system

Brazil's President Michel Temer speaks during the Latin American Cities Conference in Brasilia, Brazil, March 21, 2017. REUTERS/Adriano Machado

SAO PAULO (Reuters) - Brazil’s President Michel Temer said on Tuesday a pension reform proposed by his administration would only apply to federal employees and would not address systems managed by state governments or large cities in the South American country.

In an apparent attempt to dilute an unpopular reform that is already provoking opposition, Temer said planned changes would only apply to those included in the federal pension system. He said that many state governments were already adjusting their own pension systems or were planning to do so.

“Pension reform is for federal employees,” Temer told journalists in a statement, adding that the decision followed lobbying by politicians.

Brazil’s center-right government has repeatedly said that reining in pension costs by imposing a minimum retirement age and increasing contributions is essential to tackling a budget deficit that hit 9 percent of gross domestic product last year.

Investor enthusiasm for Temer’s business friendly reform agenda helped make its currency and stock market amongst the best performing in the world last year.

Raul Velloso, an economist and specialist in public finances, said the announcement by Temer would complicate the budgetary adjustment as governors would face a difficult task in pushing pension reforms past state assemblies.

“This decision will weaken the budgetary adjustment,” Velloso said. “It’s much easier for governors to simply say that the adjustment came from Brasilia and they have to implement it.”

Reporting by Marcelo Teixeira; Editing by Lisa Shumaker