President Javier Milei will be presenting the 2025 Budget tomorrow on the statutory date, albeit in a uniquely personalised format, with two huge question-marks in the immediate build-up – his parliamentary clout after his veto of the opposition pension bill was upheld in midweek (a victory remaining in the jaws of defeat rather than snatched therefrom) and the August inflation figure of 4.2 percent posted the same day by INDEC national statistics bureau, higher (albeit slightly) than almost every expectation. Not to mention the sub-par performance of Donald Trump, who he considers to be his great white hope for the future, in the United States presidential debate the previous evening.
The opposition in Congress lost out in Wednesday’s 153-87 vote to override the presidential veto, a margin falling short of the requisite two-thirds, without the government clearly winning. Milei risked his popularity with this insensitivity towards pensioners in the name of maintaining a fiscal surplus in order to sustain his biggest political asset of lowering inflation without actually reducing it this time round (August was fractionally up on July). Furthermore, he jeopardised his credibility by openly hobnobbing with “the caste” for the first time in order to uphold his veto (in the same month when leading libertarian senator Bartolomé Abdala embraced vices of the “caste” when confessing to employing 15 Senate advisors, not for any upper house work but for his own San Luis gubernatorial campaign).
The discomfort was fully shared by the government’s parliamentary allies, thus complicating their support for the future. The PRO centre-right caucus rallied around to save Milei’s bacon almost to a man (and woman) but they cannot have been happy about punishing pensioners when the “historic reparation” was one of the proudest banners of the Mauricio Macri administration while the erosion of retirement benefits was one of the worst failures of Kirchnerism – moreover, this comes in the same month when Milei mutilated the 2016 Access to Public Information Law, another iconic landmark of the Macri Presidency. The Radicals fared even worse with five of their 31 deputies present in the session voting against their own bill and their ongoing divisions exposed to the world.
There was a middle road available which almost nobody chose to take – upholding the presidential veto for three of the four planks of the pension bill while insisting on compensation for January shortfalls (a blind spot in the government’s new updating mechanism). But Kirchnerism, comprising two-thirds of the opposition vote, insisted on an “all or nothing” approach which in the end left them with nothing. The overall impression from this week’s parliamentary activity thus leaves a disturbing scenario of polarisation and fragmentation at the same time.
If then-economy minister Sergio Massa kicked off last year by promising an inflation of “three-something” percent by April, we are still waiting. Yet the government is placing its eggs too much in one basket if it views this as only a setback. Just as much of the earlier success against inflation came from recession despite the economic team priding itself on it being purely due to its austerity policies, August’s slight uptick bears testimony to recovery and revived demand – would that it had been stronger than 0.2 percent, many might think.
But Milei and his Economy Minister Luis Caputo are so obsessed with keeping inflation on a downward track via their rigid crawling peg devaluation of a monthly two percent that they are recklessly sacrificing Central Bank reserves in order to control the gap between official and parallel exchange rates. Yet stronger reserves are the key to the exit from the lethal ‘cepo’ currency and capital controls while their current depletion keeps Argentina’s country risk rating high at all odds with the orthodox economic policies being pursued since creditors do not see where the dollars to repay them are coming from – especially if more of those dollars are going to be needed for a greater volume and frequency of imports if the recovery holds true.
While Milei might finally make good on his presidential rival Massa’s pledge of “three-something” percent some 20 months later in this current month if the reduction of the PAIS tax has the expected impact on prices (even if stocks paying the tax at the old rate are still being sold), he would be risking his political capital if priority continues to be given to bringing down inflation over recovery – while retaining most of his popularity ratings, their tone has changed from hope to patience.
Anyway let us first see what tomorrow’s Budget looks like.
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