Monday, July 15, 2024

ECONOMY | 27-06-2024 19:26

Milei’s reforms set to cross finish line in Argentina’s Congress

President on the cusp of clinching his biggest political victory since taking office, with lawmakers likely to give final approval to two key proposals.

President Javier Milei is on the cusp of clinching his biggest political victory since taking office, with lawmakers likely to give final approval to two proposals meant to resuscitate Argentina’s crisis-prone economy.

The so-called 'omnibus' bill and accompanying fiscal package were approved by the Chamber of Deputies in April then narrowly passed in the Senate early this month, albeit with significant modifications. The lower house is expected to vote the bill into law on Thursday afternoon and possibly reverse the upper chamber’s rejection of two tax measures.

The market-friendly reforms reduce the hand of the state across Argentina and grant Milei emergency executive powers. A labour chapter makes it easier for employers to fire workers without fear of costly lawsuits and extends the trial period for employees. Another measure provides tax breaks and lays out predictable ground rules for foreign investments in key sectors like mining. The proposal also broadly deregulates the oil and gas sector, which has historically faced strict export quotas.

Senators rejected chapters that reintroduce income taxes — removed in the last months of the previous government — and encourage Argentines to declare their assets abroad for tax purposes. Milei-aligned lawmakers are trying to bring back both measures, though they face an uphill battle because of the political cost of raising taxes amid a deepening recession.

Even if the government is able to restore the tax proposals in the final approved version, left-wing Peronist lawmakers are threatening to challenge them in court. The Constitution says a measure that’s modified in one house can be brought back to its original form by the same proportion of votes in the other chamber. But it’s less clear what happens if the measure is voted down altogether, as was the case for taxes in the Senate.

Argentina’s largest umbrella labour movement had initially planned a protest outside Congress on Thursday but decided instead to hold a press conference Wednesday denouncing the government’s proposal. Demonstrations during the last round of voting turned violent as protesters lit a car on fire and tossed Molotov cocktails at riot police, who responded with tear gas and a water cannon.

The omnibus bill has been significantly scaled back from the version Milei introduced upon taking office, which included more than 600 articles. The original proposal, for example, would have privatised dozens of state firms but both chambers watered it down to just a handful, excluding both oil company YPF SA and air carrier Aerolíneas Argentinas, among other changes.

Thursday’s expected finalisation of Milei’s reform plans helps validate the president’s decision to tap Guillermo Francos, a career politician, as his new Cabinet chief to negotiate support and concessions for the legislation. The president’s dismissal of Nicolas Posse as Cabinet chief marked the highest-level departure from the government since its December 10 inauguration. 

In a sign of thawing tensions, the government handed hundreds of previously halted public works projects over to the provinces so they could restart them, although funding assurances are less clear. After the Senate vote, Francos said a pact with Argentina’s provincial governors that Milei initially hoped would be signed in May is now expected to be finalised on July 9, which is Argentina’s independence day.

by Manuela Tobias, Bloomberg


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