Argentina Senate Approves Budget Plan in Victory for President Macri

Argentina Senate Approves Budget Plan in Victory for President Macri

Argentina’s Senate approved the government’s austere budget proposal for 2019 early Thursday, handing President Mauricio Macri a legislative victory and sending a signal to investors, and to the International Monetary Fund, that his administration is committed to steep spending cuts.

The budget plan, which was negotiated by the government with various opposition legislators to guarantee its approval, now goes to the president for signing. It foresees a balanced primary budget, a measure that excludes interest payments, for next year, as agreed with the IMF.

Mr. Macri’s government has been shaken this year by a plunge in the value of the peso, which undermined market confidence in the country’s ability to pay its foreign debt and forced the administration to seek help from the IMF. Argentina eventually negotiated a $57.1 billion payout from the Fund, calming markets but upsetting many voters already unhappy about earlier spending cuts.

“It shows that an important barrier for the continuance of the IMF agreement has been successfully surpassed...and it’s a good sign for markets,” said Gustavo Rangel, chief economist for Latin America for ING. “But it will be a very tough sell” to voters.

Argentina will hold presidential elections in October. Mr. Macri’s approval ratings have dropped amid the economic crisis unleashed by the peso’s loss of about half its value against the dollar this year.

Inflation has jumped as import prices soared, with consumer prices increasing 32.4% in the 12 months through September. The government first signed a $50 billion bailout agreement with the IMF in June, but the peso continued to weaken and in September the Macri administration announced unpopular spending cuts and then renegotiated the pact with the IMF, which upped the bailout amount by $7.1 billion. The peso has since stabilized.

Mr. Macri will now have to hope that the budget, which will cut subsidies for utilities and transportation while slashing spending on public works, will help pull the country out of its current slump in time for polls next October. Argentina’s gross domestic product will contract 2.4% this year and shrink another 0.5% in 2019, according to Finance Minister Nicolas Dujovne..

“For Macri to even think about winning, he needs the economy to recover,” said Hugo Haime, a Buenos Aires-based political consultant who works for various opposition politicians. Mr. Macri would also stand a much better chance of winning if his opponent is once again former President Cristina Kirchner, Mr. Haime said.

Mrs. Kirchner, who lost the presidential election to Mr. Macri in 2015 after beating other opponents at the polls in 2007 and 2011, faces high rejection levels among Argentine voters, partly because of her alleged involvement in a graft scheme that prosecutors say enriched Mrs. Kirchner and her late husband, former President Néstor Kirchner.

Mrs. Kirchner has denied any wrongdoing and says she is a victim of political persecution by conservative rivals and partisan judges.