B
oth the institutional gesture of presenting a budget on the statutory date of September 15 and its feline rather than leonine style of presentation give a new face to President Javier Milei (which observers were not slow to link to his stunning electoral defeat in Buenos Aires Province earlier this month), but we will not know for certain unless the presidential vetoes overridden in Congress prove to be the last. And if those vetoes spurned last Wednesday were already an anachronism, what takes their place to give the government’s midterm electoral strategy any realistic target? Since an overall majority is mathematically impossible, with only 151 of the 329 parliamentary seats at stake, the government could only aspire to mustering the third of deputies to frustrate the special two-thirds majority required against vetoes – not only do these now look unsustainable but rule by decree seems doomed by the legislation demanding a bicameral majority within three months now making its way through Congress. The optimal post-midterm scenario for Milei now does not look like moving into the future with a second generation of reforms but returning to the past to where he was in the first half of the year.
In Argentina’s traditionally hyper-presidential democracy Wednesday’s Congress votes (181-60 to uphold the paediatric emergency and 174-67 for the university financing bills) merely served to reject executive vetoes but in a parliamentary democracy they would have been votes of no confidence and confidence is that intangible but key factor which has evaporated for this government in the course of this month – not least in the markets turning their back on a market-friendly government while consumer confidence studies have registered a 14-percent fall since July. With only a handful of parliamentarians and mayors, zero governors and no trade union presence, public support is everything for La Libertad Avanza and it will take more than last Monday’s 15 minutes of stolid presidential moderation to reinvent itself.
The adverse market reactions (with country risk rising over 500 points since the end of July) do not stem for any yearning for Milei to be replaced by Buenos Aires Province Governor Axel Kicillof but from disbelief that the stunted Central Bank reserves can sustain the current dirty float or pay the country’s creditors for any length of time. Milei shunned the accumulation of reserves when it was easier out of his conviction that this would only encourage demand for the dollar with impact on his electoral trump card of inflation but the dollar has been shooting up anyway. Raising interest rates beyond their current exorbitant levels is not an option because recession has been biting ahead of the midterms and not subsequently, as hoped. A genuinely floating currency would restore a shrinking balance of trade by favouring exports and discouraging imports but is not on the cards.
Milei would deserve fuller marks for at last presenting a budget with at least the stated intention of passing it through Congress were not its numbers a mishmash of wishful thinking almost from start to finish. Populist governments have been just as guilty in the past but higher standards are expected from a professional economist. If next year’s annual inflation is really going to be 10 percent, monetary policy would need to be a lot more restrictive than it already is. And in that event would five percent be a realistic growth rate? But the most facile critiques are sparked by positing that the dollar at the end of 2026 is going to be lower than it now is. Aside from asserting the sanctity of the fiscal surplus almost every minute, Milei tried to give his budget presentation a social spin without being socialist by promising increased spending on the universities, pensions, public health and even the handicapped but such increases depend on next year’s inflation being 10 percent.
Milei’s problem is that clearing the 2026 Budget past an intransigent Congress will also require the approval of the provincial governors in the process of forming a third party of their own and revival of the Interior Ministry may not be enough towards that end. With Buenos Aires Province now lost, Milei must look to the other 60 percent of the electorate with no assurance that such erstwhile conservative strongholds as Córdoba are still in his pocket.
With such a grim outlook fear might replace hope in the government message but scaremongering has already failed in Buenos Aires Province – the best bet is to continue renouncing extremism to regain the middle ground.
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