Brazil's Pension Problem

Brazilian President-elect Dilma Rousseff is starting off bold. Her initial agenda includes eradicating absolute poverty, trimming the budget, and safeguarding freedom of the press. Even the political opposition nodded in agreement. But everyone also took note of what Rousseff said she wouldn’t do: tackle social-security reform.

That’s shocking, since Brazil’s social-welfare system is among the most distorted on record. Though it has one of the world’s youngest populations, it shells out the same share of its GDP (11 percent) as the grayest nations of Europe. Worse, Brazil is aging faster than the rich countries ever did—twice as fast as Europe in the last century. And the problem is getting worse: federal, state, and local governments write checks to private-sector pensioners worth more than 7 percent of GDP, up from 2.5 percent 30 years ago. With the economy surging again, even the ballooning social-security debt seems almost manageable. But to unleash the full potential of this aspiring Latin powerhouse, Brazil has little choice but to disarm the pension bomb. While Rousseff says she’s got no such appetite, she well knows that the average retirement age in Brazil is a tender 53 … and that France was in flames because Parliament voted to raise the retirement age from 60 to 62.