In his first four months in office, Javier Milei made it clear that it was him against everybody else. He fought everybody, all the time. He sought to push through a mammoth reform agenda without talking to anybody in the opposition. He failed. But he said he had won: his victory was to part the waters of Argentine politics: “Me against the caste.”
Now that’s over. The President and his team have decided that they must now divide and rule. All politicians are caste, but some are more caste than others. Argentina has many divisions and Milei will try to profit from every one of them.
One of the main divisions is among the provinces. Argentina is nominally a federal country but extremely centralist. Provinces rely on federal revenue and handouts to make ends meet – and they fight for it. Provincial governors are among the most affected by Milei’s motosierra policy: in April, cash transfer to provinces – other than the automatic distribution through federal revenue-sharing (coparticipación) – fell a record 88.9 percent in real terms. This is money that the federal government distributes, mostly at will, among the country’s 24 districts to help them with their day-to-day spending or for public works.
This lack of cash (“No hay plata,” as Milei puts it) is mostly what is underpinning the congressional support that the ruling La Libertad Avanza got in the lower house of Congress two weeks ago and is now seeking to replicate in the Senate. If the upper house voted on strictly ideological/party lines, the government would face an outright defeat. But nothing is so linear when the Casa Rosada enters stick-and-carrot mode.
Polls numbers stubbornly show that around half of Argentines support Milei, and it seems that not even big events like the public university protest of April 23 are able to dent his popularity. Some focus groups indicate that people are willing to judge him on an issue-by-issue basis: he was voted to lower inflation, so that is the one area where he has no margin of error.
Provincial governors operate under a similar logic. The second version of the ‘Ley de Bases’ bill and the accompanying fiscal package currently in Congress has been slashed compared to its predecessor that failed during the summer, but it is still vast enough to leave ample room for political negotiation.
The reinstatement of income tax on salaried employees, for instance, is something most governors want, even though they can’t say it in public because they would infuriate their constituencies. The money collected from this tax is automatically distributed among them. The Patagonian governors are outspokenly against it, arguing that the cost of living – and therefore salaries – is higher in the region and that almost everybody will start paying. The 30,000-strong oil and gas workers’ union in Vaca Muerta is already up in arms against it and demanding special exemptions for workers in the region.
But these governors – and those in the northwestern, mining provinces – are very pleased with another aspect of the bill: a special regime for large investments known as RIGI for its acronym in Spanish. This bill would give investors willing to sink over US$200 million into Argentina tax breaks, full access to the otherwise clamped foreign exchange market and zero tariff imports for at least three decades. At least 10 governors are lobbying for this bill to pass, arguing that there are projects for at least US$20 billion in the pipeline in oil and gas, LNG, and mining.
Even the Peronist caucus in the Chamber of Deputies suffered the defections from six of its members from the provinces of San Juan and Catamarca that supported the bill. Senator José Mayans from Formosa, the Peronist leader in the Senate, will face an uphill battle if he is to deliver on his promise that “all 33 members” of his caucus will vote against the government.
As it is written, RIGI is the most beneficial regime ever created in the country for foreign investors. Thus, it is also causing a divide between foreign and local businesses. Abroad, many companies would take it as a sign that Milei means business in the transformation of the country’s business environment. Here, local firms believe it would discriminate against them. In fact, Deputy Cabinet Chief José Rolandi said in the Senate this week that it would take local business 14 years to get the same benefits that the RIGI Act gives to foreign investors.
Milei is strongly betting on the latter to make his economic programme work – thus a second meeting with Elon Musk this week and his speech at the Milken Institute Conference – the first abroad in which he explicitly called on investors to come to Argentina. “I recommend investing in Argentina,” Musk later posted online. He’s likely to wait for the Senate vote first though.
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