Milei’s decree suffers major setback after repeal in Senate

President Javier Milei’s initial dose of shock therapy is teetering on the edge of collapse after Argentina’s senate defeated his sweeping executive decree in a 42-25 vote Thursday.

The decree now goes to the lower house of Congress, where a simple majority can scrap the more than 300 measures aimed at deregulating Argentina’s economy, which have been in place since late December.

Foreign investors largely shrugged off the setback, with bonds trading mixed across the curve, according to indicative pricing data compiled by Bloomberg.

“It’s a political move that may bring about more concessions for negotiations,” said Andrew Stanners, an investment director at Abrdn. “Bonds [will] probably trade a little weaker alongside a weaker general market post-U.S. inflation figures.”

Pushback against his initiative comes after Milei failed to secure enough votes for his much larger omnibus reform package in February, stoking investor concern about his legislative strategy to revive a crisis-prone economy hurtling into recession with 270% inflation.

“This is yet another signal of the difficulties the government has in trying to navigate politics and win over key political actors,” said Lucas Romero, head of Buenos Aires-based polling firm Synopsis Consultores.

While Milei’s predecessors issued hundreds of decrees over the past 20 years, this is the first presidential edict in recent memory to be repealed by the senate, outlining the challenges he faces pushing through his economic reform agenda.

In addition to the 33 votes from the Peronist opposition bloc, nine moderate lawmakers mostly from the southern Patagonia region voted down the bill on the heels of a dispute over the transfer of federal funds to the provinces. Romero said the senators sent a political signal without inflicting as much damage as would a final defeat in the lower house.

Beyond the decree, Milei Thursday circulated a new, trimmed-down draft of his omnibus bill among governors and some lawmakers that excludes the privatization of oil company YPF SA, declares some emergency powers and proposes a new formula for calculating pension payments, among other changes. The move illustrates Milei’s revised negotiating tactic, seeking to build support among Argentina’s governors before trying to rush it through congress.

Opposition lawmakers from the Peronist party had been applying pressure on Vice President Victoria Villarruel to hold a special session to vote down the decree since January, while a handful of moderate senators signed onto the petition last month. Resisting calls for a vote became impossible after regular sessions kicked off this month, according to a person familiar with Villarruel’s decision.

The president’s press office fired off an angry statement on social media Wednesday night condemning the “hurried treatment” of the decree and expressing “concern over the unilateral decision by some sectors of the political class.” In a press conference Thursday morning, spokesman Manuel Adorni denied multiple press reports of friction between Milei and Villarruel.

Milei’s party holds just seven seats in the 72-member upper chamber and about 15% of representatives in the lower house. The decree deregulated various aspects of Argentina’s economy, including steps to privatize companies, facilitate exports and end rent control. An important part of the decree had already been suspended after an Argentine court in January deemed its labor reforms unconstitutional.

—With assistance from Philip Sanders.