Argentina bonds slump as Milei reforms go back to square one

Argentina bonds dropped in early trading after the country’s governing coalition sent President Javier Milei’s reform package back to square one in Congress after realising they didn’t have enough votes to push it through the lower house.

Notes fell across the curve, leading losses in emerging markets. Benchmark dollar bonds due in 2030 declined 1.7 cents to 41.8 cents on the dollar early on Wednesday, according to indicative price data compiled by Bloomberg. Notes due in 2041 slid 1.6 cents to around 33 cents.

“This is an important political setback for the administration. First, this law was its most important policy effort. Second, and more important, the decisive political defeat suffered by the government in Congress attest to its weak governability and lack of political ability,” said Mauro Roca, a managing director at TCW Group.

The so-called 'omnibus bill,' Milei’s first major test in the legislature, had been approved in a general vote last week following three days of debate. But in Argentina, such legislation faces a second approval process for each individual article, where Milei’s reforms faced more resistance.

“Traitors”

In a series of social media posts on Wednesday, the president listed dozens of Congress members, labeling them “the loyal and the traitors.” The political caste celebrated last night’s setback, he said, leaving good Argentines to suffer its effects today.

“They’re very similar to the beasts who celebrated the default in 2001/2002,” he wrote in a series of posts. “Come and see the enemies of a better Argentina.”

Earlier, he had vowed to continue forward with his economic programme “with or without the political class that destroyed the country,” though he didn’t provide details on the next steps or timing, ratcheting up his campaign-style rhetoric after earlier signs of pragmatic, toned-down remarks.

Milei is in Israel, where he met with Prime Minister Benjamin Netanyahu.

While investors still question whether Milei can push through his battery of reforms — particularly without sparking social unrest — many see the bold plan as the best bet for taming runaway inflation and pulling the economy back from the brink of its sixth recession in a decade. Hopes for Milei’s government had pushed some of the country’s dollar debt to the highest in more than three years.