Javier Milei used his pen on Monday to veto a law from the Argentine Congress. The law, which obtained a large majority in both the Senate and the House of Representatives ten days ago, established an increase in pensions, victims of the adjustment that the far-right politician has applied since December to achieve a fiscal surplus and control inflation. Milei’s argument has been that the increase endangers the balance of public accounts, because it does not consider the sources necessary to finance it. “They are fiscal degenerates,” he told the legislators. If the opposition manages to gather two thirds of the votes in Congress, it can annul the presidential decree and insist on the law, something that is unprecedented in Argentine democracy.
Milei had already warned that he would veto the law, but it was not yet clear whether he would do so in whole or in part. The latter option was recommended by part of the presidential entourage in order to keep bridges open with the opposition considered “dialogue-oriented.” The president finally opted for the complete veto, with the intention of sending a signal of strength to Congress, where he is in a clear minority and has been going from defeat to defeat. The law presented the Casa Rosada with two simultaneous challenges, one economic and the other political. The economic one is obvious.
As soon as he took office, Milei established by decree that, starting in April, pensions would be updated by inflation and not by a combination of salary increases and pension system revenues, as had been the case until then. The problem was that the decree did not take into account the 20.6% increase in the CPI recorded in January, with the consequent savings for the public treasury and the obvious damage to pensioners’ income. The strategy was part of the “blender” plan for expenses with which Milei achieved a fiscal surplus in the first quarter of the year.
Ten days ago, the Senate, controlled by the opposition, approved by 61 votes in favor and only eight against a modification to the system devised by Milei: it added 8.1% to this month’s salaries to compensate for what was lost in January, established that the updates should take into account the evolution of salaries in addition to inflation and, the point that most upset the Government, established a minimum floor of 1.09 basic baskets for the lowest-earning retirees. In practice, this meant setting the lowest pensions at 320,000 pesos (320 dollars at the official exchange rate), an increase of 15 dollars.
The sum was exorbitant for Milei. “The increase resulting from this law implies an increase in the cost in terms of GDP of 1.2 points. But it is not just an increase that you have for one year, it is from here to eternity. For an economy whose average interest rate is 5%, it implies that the debt has just increased by 24 points of GDP,” the president calculated on Sunday. The Congressional Budget Office was somewhat more measured: it estimated that complying with the law would mean an extra expense of 0.45% of GDP for the entire year.
The presidential veto of the law resolved, for the moment, its economic impact. But it opened a political problem instead. Both in the Senate and in the House of Representatives, the law gathered the votes of the Kirchnerist Peronism, which opposes it without nuances, but also of the forces considered allies of the Government, such as the Pro of former President Mauricio Macri (2015-2019) or the Unión Cívica Radical (UCR – social democrats). Such a confluence set off all the alarms in the Casa Rosada. If the vote of ten days ago were repeated, those same parties would have the two thirds of the votes necessary to overturn the presidential veto and leave things as they were. Such a defeat would call into question the Government’s ability to guarantee the sustainability of its adjustment policy in the long term and, they fear in the millenism, would scare away investments.
Milei took note of the danger he faces and, for the first time since he took office, decided to get political and not just talk about the economy. Last week, he met for the first time in ten months with the heads of the parliamentary blocks in favor of dialogue. He also met urgently with Macri. The former president publicly supported the presidential veto, but had already given his deputies and senators a free hand to vote in favor of the increase in pensions. He thus set the limits for Milei, who is now obliged to negotiate the Pro votes in Congress. In exchange, Macri asks for positions in the second and third lines of the Executive and to join forces with La Libertad Avanza, the president’s party, in the legislative elections next year. Milei’s dream of definitively swallowing up the Pro is slowly moving away.
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