Argentina’s Senate poses fresh challenge to Milei’s reform bills

President Javier Milei’s sprawling package of pro-market reforms is at risk of losing its most significant fiscal chapters during a tense Senate vote next week.

Opposition senators are pulling together the votes to reject bids to reintroduce income taxes, expand the president’s executive powers and privatise state-owned companies like Aerolíneas Argentinas, according to three people familiar with the negotiations. The stiffest opposition is against income taxes and privatisations, the people said. 

The package, split between two bills that would both be impacted by these changes, could be heard on the floor as soon as next Wednesday, one of the people said.

Argentina’s markets have slumped as the business-friendly reform package faces steeper challenges than expected. Benchmark dollar notes due in 2035 hit their lowest levels since March. Argentina’s parallel exchange rate, known as the ‘blue-chip swap,’ has fallen against the greenback to trade near an all-time low.

“The base case is that the bill will eventually pass, but the negotiations have been more complicated than I had been expecting,” said Alberto Bernal, chief strategist at XP Investments in Miami. “The adjustment in bond and equity prices likely internalises the lingering risk that Milei may in the end prove unable to move the legislation forward.”

Press offices for the President and Economy Ministry didn’t immediately respond to requests for comment on the status of the negotiations. 

If two-thirds of senators vote down those key chapters, the lower house Chamber of Deputies would need the same proportion of lawmakers to undo the amendments if the bill returns there. That may prove a near-impossible task given that Milei’s party holds only 15 percent of lower house seats. It holds even fewer Senate seats — seven of 72. An amendment agreed upon by a simple majority could be reversed with a simple majority.

Milei’s team is working on the issue and will try to gather the votes necessary to reverse any changes in the lower house, according to a close adviser. His Senate allies remain confident they will win approval of the ‘omnibus’ bill that includes other key priorities, even if some provisions are voted down, the people familiar said.  

The bill passed the lower house in late April and cleared its first hurdle in the Senate last week, when the three committees tasked with its review sent a modified draft to a floor vote. 

One of the conditions set by governors from the southern Patagonia provinces, who make up a disproportionate amount of committee seats, was to raise the minimum taxable income for residents of those provinces. Senators from other provinces with high costs of living, like Buenos Aires, have argued the move is unfair amid falling real wages and economic activity.

Economy Minister Luis Caputo assured Wednesday the bill would be approved sooner or later, and the government would maintain a balanced budget.

“It’s a question of time,” Caputo said at an event in Buenos Aires. “The most we can do is not move from the north star we set.”