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Last Updated: Wednesday, 6 August, 2003, 05:12 GMT 06:12 UK
Brazil backs pension reform
A dealer at the Bovespa exchange in Sao Paulo
Brazil's markets have been pleasantly surprised by Lula
Brazil's Congress has given a cautious blessing to government plans for overhauling the creaking public pensions system.

The vote in the lower house, after the ruling Workers' Party watered down some of its proposals for the debt-ridden system, is only the first step in at least another week of votes on individual amendments.

The measure then needs to go to the upper house or Senate for approval before it can start to help with Brazil's $250bn debt burden.

But at least it has passed the lower house ahead of mass protests planned for Thursday, and should - economists say - relieve pressure on both shares and the currency, the real.

Some protesters have already made their presence felt, with small groups of civil servants angry at the possible erosion of their generous benefits breaking glass doors and mobbing one leading Workers' Party parliamentarian.

Up and down

Worries about trenchant opposition to the measure have spooked investors in recent weeks, after a bullish showing in the first half of 2003.

I think Brazil will be grateful for a government with a commitment to the reforms, after so many years when governments did not have the courage to face the debates
President Luis Inacio Lula da Silva
Investors had piled back into Brazilian shares and the currency, the real, having backed off on fears about President Luis Inacio Lula da Silva's left-of-centre government ahead of his landslide election victory in late 2002.

But the trouble passing pension reform, coupled with increasing dissatisfaction from the homeless urban and rural landless movements, triggered renewed nervousness in the past month.

In the wake of the compromise, though, the markets seem happier, and stocks on the Bovespa stock exchange in Sao Paulo rose almost 1% on Tuesday ahead of the vote.

The real strengthened as well, gaining 1.6% against the dollar.

"I think Brazil will be grateful for a government in this country with a commitment to the reforms, after so many years governments only talked about the reforms but did not have the courage to face the debates as we have," President da Silva said.

The BBC's Juliet Dunlop
"For public sector unions, this is the start of a long campaign"

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