(Bloomberg) -- President Luiz Inacio Lula da Silva’s proposal to tighten military retirement rules is facing opposition from part of the armed forces, potentially watering down an austerity plan that seeks to assuage investors worried about Brazil’s deteriorating finances.
Discussions about a minimum retirement age for the military are currently on hold, according to a government official with knowledge of the matter. Finance Minister Fernando Haddad’s team and military commanders are trying to find a way to resume talks, the official added, requesting anonymity because the discussion isn’t public.
The finance ministry declined to comment.
Haddad is set on the idea that the military should contribute to the austerity effort and considers that now is the best time to make changes to their work benefits, according to a second official with knowledge of the matter. The economic team has already agreed to adjust the retirement proposal to allay concerns, the person said.
While commanders of the armed forces have no say on budget matters, Lula would rather have them on board to avoid adding tension to their delicate relationship.
Changes to benefits received by the military would account for only 2 billion reais of the 70 billion reais ($11.6 billion) the government intends to save through 2026. Yet they are considered important to show all the public sector is sharing the burden of austerity. The cost-cutting measures unveiled by Haddad last month limit hikes to the minimum wage, earnings for the highest-paid civil servants and salary bonuses to low-income workers.
While changes to benefits for the armed forces were announced by Haddad, they were not included in the proposal that was sent to congress because there were minor adjustments to be made, the official said. That delay gave military officials unhappy with the measures time to mobilize, and earlier this week the navy published a video that was seen as direct criticism to Haddad’s measures.
The Navy didn’t immediately reply to a request for comment.
Even before the opposition of the military, the austerity measures had already failed to dispel investor concerns about government overspending and its impact on inflation and interest rates. The Brazilian real sold off after the plan was announced and currently stands as the worst-performing major currency so far this year.
The austerity plan also faces an uphill battle in congress, with many lawmakers unwilling to support it as protest against a top court ruling that limits the release of public funds to projects they sponsor.
All proposals must be approved by the lower house and the senate before Dec. 23, when congress enters in recess.
(Updates fourth paragraph with Haddad’s view on the case, as relayed by person familiar with his thinking.)
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