[A-List] Brazil: minimum wage pressure

["Michael Keaney" <michael.keaney@xxxxxx>]

Minimum wage plan tests Brazil
By Raymond Colitt in São Paulo
Financial Times: November 13 2002

A congressional proposal to increase Brazil's minimum monthly wage is
testing the fiscal discipline and internal unity of the Workers' party as it
prepares to take over the presidency in January.

Since winning a landslide victory on October 27, the leadership of the
leftwing PT has sought to downplay expectations for a substantial wage
increase next year, arguing there were insufficient public funds.

Yet a majority of congressmen from the PT and many from the governing Social
Democratic party (PSDB) are now pushing for an increase from the current
R$200 (US$56) to R$240, above the R$211 earmarked in next year's budget.

While much of Brazil's workforce already earns more than the legally
established minimum, many newly elected legislators are looking to use an
increase to meet campaign promises to their constituencies.

During the election campaign Luiz Inácio Lula da Silva, president elect, had
promised to double the minimum wage within four years. The biggest impact of
a minimum wage adjustment would be on public expenditures. For each R$1
increase, for instance, the government's pension obligations increase by
R$183m over a 12-month period, according to CSFB, the investment bank.

The proposed increase as of April 1 would cost an estimated R$3.5bn. In
part, it could be financed by inflation adjustments that would increase
projected revenues in the 2003 budget - drafted in June. Yet it would also
require unpopular measures such as cutting government expenditures and
annulling a recent reduction of the individual income tax from 27.5 per cent
to 25 per cent.

"We can go somewhat beyond to R$211 but with a lot of care, because the
budget will be very tight," Sergio Machado, head of the congressional budget
committee.

PT leaders will meet Mr Machado to discuss the budget on Wednesday. Before a
final decision within three weeks, they will take into account revised
financial and economic projections for next year as well as possible demands
for an increased primary budget surplus from the International Monetary
Fund, which meets economic authorities this week.

Economists cautioned that an increase of the minimum wage could fuel further
salary demands. Some public sector unions have already signalled their
intention to press for a significant rise.

"I'm not so much worried about the budgetary implications of an additional
increase as I am about the precedent it sets for wage demands in other
sectors," said Marcelo Salomon, chief-economist with ING Bank in São Paulo.