Argentina’s Javier Milei secures backing to defeat pension increase

Argentine President Javier Milei has pledged to eliminate the country’s chronic fiscal deficit and bring down raging inflation. Photo / Tomas Cuesta, Getty Images)

Argentine President Javier Milei has defeated an attempt to increase spending on pensions in Argentina after the country’s opposition parties failed to secure the votes they needed to override the libertarian president’s veto.

Lawmakers in the lower house voted 153-87 in favour of overriding Milei’s veto on Wednesday - falling short of the two-thirds majority they needed.

Milei argued the increase, meant to more fully compensate pensioners for Argentina’s sky-high inflation, would have undermined his flagship pledges to eliminate Argentina’s chronic fiscal deficit and bring down inflation.

His minority government had been negotiating with a small group of centrist legislators who had voted in favour of the rise last month to convince them to abandon their support.

The measure would have cost about 0.45% of GDP, per analysts, compared with the 1.1% of GDP fiscal surplus Milei racked up in the first half of the year via a severe austerity package.

“Today, 87 heroes stopped the fiscal degenerates who tried to destroy the fiscal surplus Argentines have worked so hard to build,” Milei said on social media platform X after the vote.

Moments after Milei’s boost in congress, Argentina’s national statistics agency published monthly inflation data showing prices rose 4.2% month-on-month in August, slightly above economists’ expectations.

Meanwhile, closely watched core inflation, which excludes seasonally affected and regulated prices, accelerated 0.3 percentage points compared with July, to 4.1%.

While the monthly inflation rate has fallen significantly since its peak of 26% in December, it has hovered stubbornly at just over 4% since May, suggesting the government is struggling to reach its medium-term goal of 2% a month.

Ramiro Blazquez Giomi, head of research and strategy at investment bank BancTrust, said a likely boost to bond prices from Milei’s win in congress would probably cancel out any negative impact from the inflation news.

Next month will be crucial for the government’s effort to bring down inflation, which has hinged on low benchmark interest rates designed to eliminate the need for central bank money printing, rigid control on Argentina’s official exchange rate, and a recent reduction of the country’s import tax, which should soon start to ease some prices.

“We think that September could be the litmus test for the government’s disinflation strategy,” Blazquez said.

“If inflation doesn’t go down next month, they will have to raise interest rates.”

Written by: Ciara Nugent in Buenos Aires.

© Financial Times