Civil Service Reform Effort Gains in Brazil

The Brazilian government scored a crucial legislative victory Wednesday when the lower house of Congress backed a key element of its efforts to streamline the civil service, officials said.

Congressional officials said the Chamber of Deputies rejected an opposition amendment that would have restored jobs-for-life guarantees for public servants, a privilege revoked in a civil service reform bill that was approved by the body last week.

The officials said 322 deputies, 14 more than the minimum needed, voted to reject the amendment in a ballot regarded by international markets as essential if Brazil is to weather financial ill winds from stock and currency turmoil in Asia. The reforms would save up to $7 billion in spending on the country’s bloated civil service.

“This is extremely important to our efforts to build a barrier against financial instability that could come our way,” said Deputy

Aecio Neves, lower house leader of President Fernando Henrique Cardoso’s Social Democratic Party.

“This is yet another important victory for the country,” Neves added as government allies wept and cheered, relieved at what was regarded as a wider-than-expected margin of victory in a highly controversial vote.

Brazilian stocks surged on optimism about the vote.

“Progress on reforms is opening the way for Brazil to be de-coupled from Asia,” said Ricardo Alario, head trader at Rio de Janeiro-based Latinvest Asset Management, which has $1.2 billion worth of Brazilian stocks in its portfolio. “This is the kind of action the market wants to see.”

The Sao Paulo Bovespa index rose 222 points, or 2.43%, to 9,372.76.

The civil service reform faced one more test Wednesday with a ballot on another opposition amendment that would maintain equal pay for working and retired civil servants. A third amendment, which threatened to remove a salary ceiling for the public sector, was withdrawn by its sponsors.

Brazil has been battered by tidal waves from Asia, where several countries have been forced to devalue amid a general stock and real estate market meltdown.

Concerns about Brazil’s bleeding public-sector accounts, its wide current-account deficit and its overvalued currency have devastated local share prices, while the central bank last month had to spend $7.2 billion to prop up the real.

Along with other key structural reforms designed to reduce public-sector spending and take the government out of the red, foreign investors have identified passage of the civil service bill as a fundamental step to restoring confidence.

The government says approval of the new civil service law, which must still pass twice through the Senate after the lower house, would save up to $9 billion in payroll costs.

The legislation is especially important for states and municipalities, some of which spend as much as 80% of their revenue on salaries and pensions for staff they are not allowed to dismiss.