High political and regulatory uncertainty will set the tone in 2024, given the government’s lack of legislative power
On December 20, President Javier Milei announced his first package of reforms through a necessary-and-urgent decree (DNU) comprising more than 360 articles. The DNU focused on reforms for the healthcare sector, foreign trade, and the labor market, as well as facilitating the privatizations of state-owned companies such as Argentine Airlines. Furthermore, on December 27, the government submitted an Omnibus bill to Congress to extend the initial decree. The bill, containing 664 articles, proposes changes to the electoral system, deregulates the economy, and enhances the DNU’s privatization initiatives. As there is a high likelihood of rejection, clients’ government affairs teams should track legislators’ positions regarding the reform daily. Although the DNU and the Omnibus bill include key structural reforms, multinationals should anticipate a challenging operational environment and a weakening of consumers’ purchasing power in 2024. Thus, clients should avoid setting aggressive local currency growth targets and prioritize products catering to more price-sensitive consumers.
Overview
- The reforms included in the DNU are currently valid, as such decrees are binding until they are overturned. The DNU will only lose its validity if rejected by both legislative chambers. Neither the Senate nor the Chamber of Deputies can introduce amendments, modifications, or additions. However, the judiciary can reject parts or the entirety of the DNU.
- The Bicameral Commission must publish a report on the decree’s validity by January 15 at the latest and forward it to the plenary sessions of both chambers for a vote. President Milei has emphasized the necessity of approving the reforms by the end of the month.
- The most significant changes impacting clients include repealing the Gondola Law, which removes state interference in pricing decisions, and eliminating the Price Observatory. Additionally, the DNU digitizes the foreign trade process and abolishes registration systems for importers and exporters.
- Regarding labor market reforms, on January 3, the National Labor Court suspended the labor provisions in the DNU, which limited the right to strike, reduced severance payments, and eliminated “solidarity quotas” for unions.
Details of the Omnibus Bill:
- Unlike the DNU, the Omnibus bill must receive legislative approval to become effective. Both chambers have the authority to propose modifications and selectively approve specific bill reforms. The vote is scheduled for the last week of January. In the event of the law’s rejection or a delay in the voting process, the government has indicated the possibility of extending the extraordinary legislative session into February, issuing additional DNUs, or initiating a referendum. However, it’s important to note that presidents can only call non-binding referendums.
- The main reforms included in the Omnibus bill are a reduction of personal taxes (from 1.5% to 1.3% in 2024), an amnesty for undeclared capital (capital lower than USD 100,000 will pay zero percent), and the introduction of a 15% tax on most exports, excluding hydrocarbons, mining, and some agricultural products. Additionally, the bill eliminates the presidential primaries and declares 41 entities eligible for privatization, including YPF, the state-owned Argentine energy company, and Banco Nación.
Our View
The DNU will lose its validity if at least 129 deputies and 37 senators vote against it, assuming no abstentions. The major Peronist bloc (UPP) has 102 deputies and 33 senators, which nearly represents the necessary majority to reject the decree. Left and centrist blocs such as the Union Civica Radical (UCR) are likely to vote against it. Therefore, we anticipate the DNU’s rejection or further judicial setbacks, like the resolution that suspended the labor market reforms. As for the Omnibus bill, we expect some modifications to the proposals; however, reforms related to taxation and deregulation are likely to be approved. Finally, Milei’s plan to initiate a referendum is expected to keep political uncertainty high, while the severe economic crisis is likely to continue posing a significant risk for social unrest.
Political and overall governability signposts to watch:
- New coalitions in Congress: The government lacks an absolute majority to ensure the approval of the DNU. Nonetheless, the UPP also lacks the majority needed to reject the decree. Thus, monitoring the government’s ability to secure the support of centrist and provincial parties is crucial. As of January 8, the UCR, with 34 deputies and 13 senators, has questioned the constitutionality of the DNU. Similarly, the newly formed bloc Hacemos Coalición Federal, with eight deputies and three senators, has declared its intention to vote against the decree.
- Approval rating: Given the high likelihood of a DNU rejection, the elevated potential for social unrest, and Milei’s intention to launch a referendum, clients should closely monitor the president’s popular support and ability to address the expected protests peacefully. According to the latest polls, 48.8% of respondents consider the government of Alberto Fernandez responsible for the current crisis. However, some polls also show that 55.5% of respondents have a negative image of President Milei, and 54.6% would vote against the DNU in case of a referendum.
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