Vow of austerity sets up showdown over 2025 Argentina budget

Libertarian President Javier Milei of Argentina presented the 2025 budget to Congress late Sunday, outlining policy priorities that reflected his key pledge to kill the country’s chronic fiscal deficit and signalled a new phase of confrontation with lawmakers.

In an unprecedented move, Milei personally pitched the budget to Congress instead of his economy minister, lambasting Argentina’s history of macroeconomic mismanagement and promising to veto anything that compromised his tough slog of tight fiscal policy.

The president’s budget proposal followed a week of political clashes in the legislature – where Milei controls less than 15 per cent of the seats – over spending increases that the administration warns would derail its “zero deficit” budget that’s backed by the International Monetary Fund. Opposition parties have sought to raise salaries and pensions with inflation to help hard-hit Argentines cope with harsh austerity.

“The cornerstone of this budget is the first truth of macroeconomics, a truth that for many years has been neglected in Argentina: that of zero deficit,” Milei told lawmakers, facing rows of empty seats as most of the hard-line opposition Peronist bloc, Unión por la Patria, skipped his address. “Managing means cleaning up the balance sheet, deactivating the debt bomb that we inherited.”

Milei’s supporters interrupted his speech ‑ packed with his usual libertarian talking points – with whoops and cheers.

It will fall to the opposition-dominated Congress, which controls the government’s purse strings, to approve the final budget. Milei’s political isolation makes matters fraught, setting up weeks of negotiations with rivals who insist on concessions.

But Milei vowed that nothing would stop him from pressing on with austerity.

“The budget is a declaration of principles,” said Argentine economist Agustín Almada. “Even if there is no compromise from the opposition, Milei will continue pursuing this fiscal contraction.”

If the stroke of a veto pen failed to prevent powerful lawmakers from spending, Milei promised to find other ways to cut down the state.

“We will only discuss the increase in spending when it comes along with an explanation of what we’ll cut to compensate for it,” Milei said.

Over Milei’s past nine months in office, dramatic cuts to public spending – which he says are necessary to restore market confidence in a country ravaged by one of the world’s highest annual inflation rates – have racked up a fiscal surplus (0.4 per cent of gross domestic product), something unseen in nearly two decades.

The austerity has also caused deep economic pain in Argentina, with nearly 60 per cent of Argentines now living in poverty, up from 44 per cent in December 2023, according to the Catholic University. Milei has balanced the budget by slashing financial transfers to provinces, removing energy and transport subsidies, and holding wages and pensions steady despite inflation.

The fight over pensions reached a head last week when Milei and his allies defeated a bill that would have boosted social-security spending in Argentina, compromising the administration’s fiscal discipline.

The bill had swept through both houses of Congress last month but opposition parties ultimately failed to obtain the two-thirds majority needed to override the president’s veto after government lobbying eroded support for the measure.

At the news of the bill’s rejection Wednesday, outraged retirees – who have lost roughly half of their purchasing power due to inflation – poured into the streets of downtown Buenos Aires, where they faced off with riot police spraying tear gas and water cannons.

Milei warned that his fiscal shock therapy was not going to be easy. But his administration is betting that the worst has passed. Although Argentina’s annual inflation hovers around 237 per cent, Milei has retained popular support by working to keep a lid on monthly inflation, which has dropped to 4 per cent since its peak of 26 per cent last December when he took office.

In an optimistic statement about the budget Sunday, the Finance Ministry said it expected Milei’s proposal to result in an annual inflation rate of just 18 per cent by the end of 2025 and yield a 5.0 per cent economic growth rate. Argentina’s economy contracted by more than three per cent in the first half of 2024.

But much of Milei’s future depends on Congress. The government’s pension law victory over congressional opponents proved short-lived as lawmakers in the Lower House also passed a bill increasing spending on public universities.

Milei has vowed to veto the bill.

Milei suffered another blow when lawmakers rejected his plan to raise spending on the intelligence services by more than US$100 million. Despite all the belt-tightening, Milei has committed to increasing defence spending from 0.5 per cent of GDP to 2.1 per cent, raising the hackles of some lawmakers amid his cuts to health and education.

AP