Reforming Argentina’s infamously dysfunctional, crisis-prone economy was never going to be easy for President Javier Milei. But on 12 June, the country’s Senate approved a slimmed-down omnibus bill that when eventually signed into law will give Milei broad executive powers and open up Argentina’s closed economy.
Predictably, the streets of Buenos Aires erupted in violent protest, with the powerful labour union Confederación General de Trabajo (CGT) marching to the capitol building and barricading roads.
The Senate narrowly approved the bill 37 votes in favour to 36 against, with the vice president casting the deciding vote. It will now pass to the lower house for final revisions.
This is a significant victory for the president of a country with deeply rooted, powerful interests and governance problems.
The 328-article reform package did not contain everything the president, a self-proclaimed ‘anarcho-capitalist’ asked for. Still, when finally approved it will likely include a number of deep reforms that represent a radical departure for Argentina’s state-centric economy.
Included in the bill, most of which will likely pass into law, are provisions to grant the executive powers to slash regulations, give private firms greater discretion in the hiring and firing of workers, and make deep cuts in education funding. Tax breaks and incentives for foreign investment in the domestic economy also feature.
Remarkably, President Milei remains popular, despite the massive protests (the third such event since he was inaugurated in December 2023) and the scope of his plans to slash public spending by reducing subsidies and government employment.
Estimates are that around 60 per cent of Argentina’s population benefits in some way from general public subsidies, whether fuel or transport, or from generous public employment programmes. Yet one April poll still placed Milei’s approval rating at just under 50 per cent.
The scale of the problem
At first glance, those numbers are surprising. Annualized inflation under Milei has been ‘reduced’ to 300 per cent and, at least so far, early reforms have failed to significantly boost economic growth. GDP is expected to contract by 2.8 per cent this year.
Yet even those figures look positive following decades of economic mismanagement and corruption under successive Peronist governments. From 2019 to 2023, under former president Alberto Fernandez, galloping inflation placed basic food stuffs and goods out of reach for many Argentines.
The 2023 presidential vote demonstrated that citizens wanted dramatic change. Milei, a one-term congressman who made a habit of wielding a chainsaw at rallies, campaigned as an outsider candidate willing to take extreme measures to tear down Argentina’s distorted, dysfunctional, disaster-prone economy with which the Peronist party is so closely associated. It worked.
Argentina, and even the broader region, had never elected a libertarian. Yet this libertarian economist beat his Peronist opponent, Sergio Massa, handily – and nearly swept all electoral districts, including Peronist strongholds in the interior of the country.
But the Peronist Party, whether through the Peronist CGT or the grassroots networks aligned with it, can easily control the street, as it has done in the past, staging large strikes, closing down sectors of the economy and wreaking havoc on transportation.
A lack of connections and a volatile temper
Milei’s problem on coming to power was that while popular at a personal level, he lacked connections to Argentina’s traditional structures of economic, social and political power, including the Peronist CGT and neighbourhood associations and the country’s traditional political parties.
In the 2023 contests, in which a half of the congress’s two chambers were renewed, Milei’s party Libertad Avanza (‘Freedom Advances’) won only 40 in the 257-seat lower house and seven in the senate (where the Peronist bloc holds 33).
Many worried that the theatrical, volatile president lacked not only congressional support but also the personal temperament to negotiate his massive reforms – which some believe are necessary to right the economy.
To his credit, with the passing of this bill the president has succeeded in taking an important first step, securing the political backing of centre-right and provincial parties to pass what is likely to be only the first volley in his assault on the country’s vast state apparatus and its heavy-handed intervention in the economy.
The president’s popularity has helped. Many of those who support Milei are in the informal economy and are young voters. For them, the CGT and many existing social and political organizations represent a distant, privileged elite of the past.
Can it last?
The question will be how long Milei can maintain these levels of popular support and sustain his ad hoc political coalition, as the Argentine economy continues to struggle.
The president has produced the first fiscal surplus in recent history and nudged the economy towards market reform. This has earned him the praise of the International Monetary Fund, which released a new tranche of an outstanding loan.