Peru's Congress grants Humala special powers on economy

LIMA (Reuters) - Peru's Congress on Thursday granted President Ollanta Humala special powers to pass new economic reforms, a rare congressional victory for his government as a year-long slowdown shows signs of recovery.

But lawmakers also overrode Humala's veto earlier this week of a bill that he warned would increase the fiscal burden.

The government had described congressional support for its special powers request as key to shoring up lagging consumer and business confidence.

Growth in Peru picked up in March and expanded at the fastest rate in more than a year in April on a mining surge.

Finance Minister Alonso Segura said giving the cabinet the ability to rapidly push out new economic reforms would help underpin ongoing growth.

"The economy is recovering, but it's a fragile recovery," Segura told Congress before its 86-22 green light for the bill.

Opposition lawmakers had blocked a vote on the legislation last week amid a different dispute with the ruling party. Before passage on Thursday, they reduced the period that the executive could command legislative powers to 90 days from 120.

The government, which has cut taxes and loosened environmental rules to spur growth in the past year, has not detailed its new reform package.

But Segura has said new measures will aim to make Peru more competitive in the medium and long term by reducing red tape and boosting construction and manufacturing activity.

The bill that lawmakers passed despite Humala's veto eliminates mandatory deductions from twice-annual worker bonuses that fund pension and healthcare programs.

Humala's government said the measure would strip $4.5 billion in expected funding for the state pension system and erase $285 million in annual revenues for public health programs.

Oppostion lawmakers argued state pension and health systems have plenty of resources but manage them poorly.

The law will go into force next year unless the Constitutional Court steps in. The state medical programme EsSalud said it would take legal action.

Peru has forecast a fiscal deficit equal to 2 percent of gross domestic product in 2015.

Four private pension funds, the biggest source of investment capital in Peru, are also partly funded through the deductions and may see their revenue streams hit.

Humala's popularity has sunk to its lowest in his four-year term. His support in Congress has also slipped and opposition lawmakers loyal to jailed ex-president Alberto Fujimori now make up the largest voting bloc.

(Reporting by Marco Aquino, Writing by Mitra Taj; Editing by Diane Craft and Lisa Shumaker)