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Argentina’s Senate narrowly approved a pair of sweeping reform bills, giving President Javier Milea a much-needed first legislative victory amid mounting economic and political pressures six months into his term.
Senate President Victoria Villarruel, Argentina’s vice president, cast the deciding vote for overall approval of the first bill, which includes investment incentives, a plan to privatize some state-owned companies and expand presidential powers on some economic policies.
A separate bill aimed at reducing Argentina’s fiscal deficit was also approved on Thursday, although lawmakers scrapped a key article aimed at restoring income tax for high earners after it was repealed last year.
Both bills were heavily weakened by the original government proposals in their attempt to pass the Senate. Both face a final vote in the lower house, where some Senate amendments could be overturned, but are now highly likely to become law.
“It is a triumph for the Argentine people and the first step to restore our greatness,” the president’s office said in a statement after the vote.
Milei, who controls less than 15 percent of the seats in Congress, has so far relied on executive power to cut public spending and deregulate Argentina’s economy through decrees. Analysts said he needed 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 percent.
“Without [these bills] the next few months would be very turbulent both in terms of markets and political conflicts,” said Lorena Giorgio, chief economist at consultancy Equilibra. “With this, we have a better chance of a smooth exit from the crisis, although it is by no means guaranteed.”
She added that the investment incentive scheme will 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.
In another boost to Milea, Argentina’s central bank announced on Wednesday that it had reached an agreement with Chinese authorities to exceed about $5 billion in debt payments due next month, easing pressure on its perilously low foreign exchange reserves.
The approval of Milei’s bill comes on the heels of a landslide defeat in the lower house, where left-wing and centrist lawmakers last week defied the government to approve a pension spending hike that would cost 0.4 percent of GDP.
While Milei has vowed to veto any bill that threatens his “zero fiscal deficit” plan, the vote indicated the opposition would be able to muster the two-thirds majority needed to override the veto.
Those calls partially reversed the rally in Argentine government bond prices over the past month and contributed to volatility in the peso’s black market exchange rate.
Wednesday’s vote will boost bonds and the peso, according to market analysts.
Ana Iparraguirre, a partner at Buenos Aires-based strategy group GBAO, said the bill’s passage would not be enough to dispel “the big question mark that has been raised about Milei’s ability to carry out his plans,” with the legislation likely to face fierce battles. broken congress.
Defeat to restore the income tax, a tax critical to the finances of Argentina’s 23 provinces, may continue to strain relations with their powerful governors, none of whom belong to Milea’s La Libertad Avanza coalition, analysts said.
“The [broad reform bill] is a great achievement for such an institutionally weak president and gives him some room to manoeuvre,” she said. “But Congress showed its teeth.