Argentine Senate gives final OK to progressive economic overhaul plan

Argentina’s Senate gave final legislative approval on Saturday to an emergency economic reform package touted by new President Alberto Fernandez as the country’s best chance at sparking growth, reducing poverty and taming inflation.

The “Social Solidarity and Production Reactivation” act was approved 41-23 with one abstention in the Senate after passing the lower House on Friday, all less than two weeks after moderate Peronist Fernandez took office.

The new leader is faced with inflation of more than 50% and an economy expected to shrink for a third straight year in 2020. He is headed into restructuring talks on about $100 billion in debt owed to bondholders and the International Monetary Fund.

The reforms are meant to show creditors that Argentina is on a path toward sustainable growth after years of malaise.

“This bill represents a new type of fiscal adjustment for Argentina, in that it is focused on taxing the rich,” said analyst Julio Burdman, head of local consultancy Roger Data.

“It combines sound economic policy with a progressive political approach,” Burdman added. “In the past, we either had orthodox austerity without social sensitivity, or inflationary policies without macro-economic rationality.” Fernandez is aiming for fiscal equilibrium in 2020 while ending the painful government subsidy cuts that killed growth under previous President Mauricio Macri and derailed his re-election bid. Fernandez, promising to bring relief to the poor, thumped Macri in the October election.

Utility prices are to be frozen until June 30 next year, under Fernandez’s program. Subsidy cuts under Macri had jacked up electricity and heating gas bills during his four-year administration, stoking inflation and social anger.

“The emergency law is not business friendly, especially not for the utility sector, but it delivers a sense of pragmatism,” said Alberto Bernal, chief emerging markets strategist at XP Investments in New York.

“Its approval implies the government will have the resources to deliver on its promises of increased social spending without resorting to printing money,” Bernal said.