Javier Milei defends fiscal policy: Increase in pension spending averted

Argentine President Javier Milei recently prevailed against a push to increase pension spending after opposition parties in parliament failed to gather enough votes to override his veto. In the lower house, 153 deputies voted to overturn Milei's veto, but they fell short of the required two-thirds majority. Milei argued that the increase, intended to benefit pensioners amid high inflation, would jeopardize his central promises to eliminate Argentina's chronic budget deficit and reduce inflation. His minority government had negotiated with a small group of centrist lawmakers who had initially voted for the pension increase to regain their support. Analysts indicated that the measure would have cost about 0.45 percent of the gross domestic product, compared to the fiscal surplus of 1.1 percent of GDP that Milei achieved in the first half of the year through a stringent austerity package. "Today, 87 heroes stopped the fiscal criminals who attempted to destroy the hard-earned budget surplus of the Argentinians," Milei said after the vote on the platform X (formerly Twitter). Shortly after Milei's political victory, Argentina's national statistics office released current inflation data. Prices rose by 4.2 percent in August compared to the previous month, slightly exceeding economists' expectations. Core inflation, which excludes seasonal and regulated prices, accelerated by 0.3 percentage points compared to July, reaching 4.1 percent. Although the monthly inflation rate has significantly decreased from its peak of 26 percent in December, it has stubbornly remained slightly above 4 percent since May. This indicates that the government is struggling to achieve its mid-term goal of 2 percent monthly inflation. Ramiro Blázquez Giomi, head of research and strategy at the investment bank BancTrust, expressed that the likely positive effect on bond prices following Milei's victory in Congress would probably offset the negative impacts of the inflation data. The next month will be crucial for the government's efforts to reduce inflation. These efforts rely on low interest rates to eliminate the central bank's need for money creation, strict control of the official exchange rate, and a recent reduction in the import tax, which should soon lower some prices. "We believe that September will be a litmus test for the government's disinflation strategy," said Blázquez. "If inflation does not decline next month, they will have to raise the interest rates.