Argentina's Senate scored an important victory by approving Liberal President Javier Milley's major reform bill and twin fiscal packages, but it came at a heavy price, as both bills were passed watered down.
The Senate narrowly approved Milley's “base” bill in principle late Wednesday, a boost for the governor's austerity and pro-market policies that have stimulated markets and improved the state's finances, but a major blow to the broader economy.
The government broadly approved another fiscal package early Thursday but rejected specifics on taxes and property.
The bill will now be sent back to the House of Representatives to ratify the changes, but Senate support is crucial for Milley, a cutting-edge economist and former commentator who took office in December pledging to reform the country's struggling economy.
The move showed Trump's Libertarian party's ability to win over conservative and centrist supporters despite its small number of seats in Congress, and came amid continued fierce protests outside Congress against the bill.
“It is symbolic that minorities in both chambers have shown they are capable of achieving the approval of such an important law,” Prime Minister Guillermo Francos said in a statement.
Argentina's international dollar-denominated bonds rose on Thursday as investors breathed a sigh of relief that the Senate's approval of a sprawling bill ranging from privatizations to investment incentives was not rejected.
But the government had to negotiate tough deals to win support, agreeing to changes to investment incentives plans and removing state-owned enterprises such as the national airline and post office from the list of companies to be privatized.
“Even if it's not the (original) official proposal or something lawmakers have approved, it's an important step,” said Juan Masotto, an economist at the local University of Salvador. “It strengthens the government and eases investor fears.”
Ernesto Revilla, Citi's Latin America economist, said in a client note that the Senate's support was a victory for Millay but it came at a cost.
“We view the bill's approval as a bittersweet victory for the Millay administration, a bill that has been six months in the making and constantly weakened along the way,” he wrote.
Disaster or necessary change?
On the streets, Argentines had mixed emotions.
The country is struggling with triple-digit inflation, high debt, perverse capital controls and depleting central bank reserves.
Milley has focused on fixing the state's finances, a tough fix that has helped eliminate deep budget deficits but has hurt economic activity and jobs.
“Honestly this is a disaster. I'm horrified at what they voted for,” Laura Cansinos told Reuters on a crowded street in the capital early on Thursday.
“I don't think we understand yet what the consequences of that are.”
Juan Pablo Echevezti, on his way to work in Buenos Aires, was more optimistic.
“I don't see any option for moving forward other than the kind of fundamental changes they're proposing,” he said.
“I'm not 100% in favor of it, but I think it would be a positive change. I hope I'm wrong.”
Joydeep Mukerji, managing director at ratings agency S&P Global, said the Senate victory could be a “breakthrough” if approved by the House of Representatives, but that “there is still a lot of work to be done” before a rating upgrade would be possible.
“For average people across the country, things are just getting worse,” he said at the event.
“The question is, will they be fast enough, sophisticated enough and lucky enough to survive the worst moments of this adjustment?”
