Argentina’s senate has narrowly approved a pair of wide-ranging reform bills that give President Javier Milei a badly needed first legislative victory amid rising economic and political pressures six months into his term.
Senate president Victoria Villarruel, Argentina’s vice-president, used a casting vote to give overall approval to the first bill, which includes incentives for investments, a plan to privatise some state companies and an expansion of presidential powers over some economic policy.
A separate bill aiming to trim Argentina’s fiscal deficit was also approved on Thursday, although lawmakers struck down a key article aiming to restore income tax for high earners after it was scrapped last year.
Both bills were heavily watered down from the government’s original proposals in a bid to pass the senate. They both face a final vote in the lower house, where some senate amendments could be reversed, but they are now highly likely to become law.
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“This is a triumph for the Argentine people and the first step towards recovering our greatness,” the president’s office said in a statement after the vote.
Mr Milei, who controls less than 15 per cent of congressional seats, has so far relied on executive power to slash public spending and deregulate Argentina’s economy by decree. Analysts have said he needs to pass longer-term legislative reform to restore investor confidence and pull the country out of a severe economic crisis that has driven annual inflation to 289 per cent.
“Without [these bills] the next months would have been very turbulent both for markets and political conflicts,” said Lorena Giorgio, chief economist at consultancy Equilibra. “With it, we have a better chance of a smooth exit from the crisis, though it is by no means assured.”
She added that the investment incentive scheme would encourage the flow of dollars into the country – an important factor in the government’s plans to eventually lift Argentina’s strict currency and capital controls.
[ How Javier Milei’s transformation of Argentina is coming at a costOpens in new window ]
In another boost for Mr Milei on Wednesday, Argentina’s central bank announced it had reached an agreement with Chinese authorities to roll over about $5 billion (€4.65 billion) in debt repayments due in the next month, alleviating pressure on its dangerously low foreign exchange reserves.
The approval of Mr Milei’s bill comes on the heels of a bruising defeat in the lower house, where leftist and centrist lawmakers last week defied the government to approve an increase to pension spending that would cost 0.4 per cent of GDP.
While Mr Milei has pledged to veto any bill that endangers his “zero fiscal deficit” plan, the vote suggested that the opposition would be able to reach the two-thirds majority needed to override a veto.
Such challenges have partially reversed a rally in Argentina’s sovereign bond prices over the past month and contributed to volatility in the peso’s black market exchange rate. Market analysts said Wednesday’s vote would boost the bonds and peso.
Ana Iparraguirre, a Buenos Aires-based partner at strategy group GBAO, said the bill’s approval would not be enough to dispel “a big question mark that has emerged about Milei’s ability to enact his plans”, with legislation likely to face fierce battles in the fractured congress.
The defeat of the restoration of income tax, a levy that is very important to the finances of Argentina’s 23 provinces, may continue to strain relations with their powerful governors, none of whom belong to Milei’s La Libertad Avanza coalition, analysts said.
“The [broad reform bill] is a big achievement for such an institutionally weak president, and it gives him some room to manoeuvre,” she said. “But congress has shown its teeth.” – Copyright The Financial Times Limited 2024