Argentina Senate Poses Threat to Macri Agenda Amid IMF Talks

(Bloomberg) -- Argentine President Mauricio Macri faces one of his toughest domestic battles on Wednesday as the Senate prepares to vote on a bill that would limit his ability to narrow the fiscal deficit amid talks with the IMF for a credit line.

Lawmakers will vote on a bill that would curtail Macri’s ability to continue raising prices on utilities, such as natural gas and electricity, at 2 p.m. in Buenos Aires. The subsidies, which rose under former president and now Senator Cristina Fernandez de Kirchner, are unsustainable and the bill is unconstitutional, Macri said on Monday. He said he will veto it if it reaches his desk.

The proposal, if passed, would hinder Macri’s efforts to reduce Argentina’s fiscal deficit, which is the focal point of the government’s negotiations with the International Monetary Fund. This week the Macri administration unveiled a plan to to cut 20 billion pesos ($805 million) from this year’s budget to bring it closer to its 2018 fiscal deficit target of 2.7 percent of gross domestic product. Macri has gradually pulled back subsidies that soared under Fernandez, an advocate of the current bill.

If Macri vetoes the bill, it would go back to the lower house, which would need a two-thirds majority to overturn the veto. In the bill’s first vote in the lower house, it fell short of that threshold. The bill proposes returning utility prices to levels last seen in November. The legislation tests the clout of Macri, who at times has convinced opposition lawmakers to pass his reforms. He urged them Monday not to vote for the bill.

The government may need to cut the fiscal deficit even more, according to economists. Some have said that the IMF may ask Argentina to cut it to 2.5 percent. The IMF credit line, if approved, is intended to cool investors’ concern about Argentina’s growing deficits and debt load.

Last year, Macri’s political coalition emerged victorious in mid-term elections while the opposition Peronist wing appeared fractured and lost seats. If this bill moves forward, it would underscore growing unity among the Peronists.

It would also represent another setback this year for Macri’s economic agenda. The peso is down 25 percent this year, consumer confidence is falling and inflation is at 25 percent, well above the government’s 15 percent target.

©2018 Bloomberg L.P.