Argentina’s Senate on Thursday defied the government to approve an increase to pension spending that would cost at least an estimated 0.4% of the gross domestic product, dealing a blow to President Javier Milei’s harsh austerity program.
The bruising defeat for right-wing president again cast a spotlight on his weakness in Congress, where leftist and centrist lawmakers hold sway.
The bill, which already swept through the lower house in June, passed the Senate in a 61-8 vote. All but one of the lawmakers who voted against the bill were from Milei’s party, a sign that the president’s allies had failed to compromise with other right-wing parties.
Milei has vowed to strike down legislation that undermines his “zero deficit” plan.
“Anything that goes against public accounts will be vetoed,” presidential spokesman Manuel Adorni said Thursday.
But lawmakers could easily override his veto by passing the law with a two-thirds majority again.
Because Milei’s libertarian party controls less than 15% of congressional seat — and just seven of the Senate’s 72 seats — the populist outsider has largely relied on sweeping executive decrees to cut down the state, slash public spending and deregulate Argentina’s economy.
After six months in office, he finally clinched his first legislative victory in June, when his wide-ranging economic reform bill squeaked through the Senate after hours of torturous negotiations with lawmakers as protesters hurled Molotov cocktails outside.
But the pension law, which sets more than an 8% increase in retirement benefits this year, threatened to revive investors’ fears about Milei’s ability to implement his radical agenda aimed at rescuing Argentina’s long-troubled economy — notorious for debt defaults, chronic overspending and runaway inflation.
In the first six months of the year, Milei has managed to achieve an extremely rare fiscal surplus by slashing state spending, halting public works projects and cutting revenue transfers to provinces.
“The pension reform passed today is particularly sensitive because it partially impacts the core of Milei’s fiscal program,” said Marcelo J. Garcia, Director for the Americas at Horizon Engage, a New York-based political risk consultancy firm.
“What most concerns investors is that this negative streak is the result of the hard-line, more confrontational side of Milei’s inner circle taking the lead.”
Opposition lawmakers hailed the law, which includes cost-of-living adjustments for pension benefits to keep pace with the country’s dizzying 260% annual inflation rate. Since 2017, the law’s supporters say, pensions in Argentina have lost 45% of their value as prices rise and the country’s currency slides against the dollar.
The minimum monthly pension hovers around $233 while the basket of goods and services typically used to calculate inflation costs over $300 a month.
Milei’s allies said that the law would further deplete the country’s finances at a time when the government is trying to reel in spending as much as possible.
Senator Bruno Olivera Lucero from Milei’s Liberty Advances party warned that such a system of steadily increasing benefits “complicates the fiscal balance,” with spending on pension benefits now expected to eat up 0.4% of GDP this year and 0.8% of it next year.
Tensions between Milei and his opponents in Congress have simmered ever since he rode to power last December on a wave of public outrage against Argentina’s political establishment.