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Argentina’s Milei Alters Reform Plan Again in Bid to Win Congress Approval

(Bloomberg) -- President Javier Milei is further watering down his sweeping reform bill in an attempt to get it through Argentina’s congress, the clearest sign yet that the libertarian’s “shock therapy” economic plans face major political hurdles.

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Milei conceded on some emergency executive powers Monday that would have allowed him to unilaterally set policy on fiscal and pension matters for up to two years, spokesman Manuel Adorni said in a press conference. Those changes followed his decision to shelve the bill’s most important austerity measures on Friday, as he sought to push the so-called omnibus bill closer to the legislative finish line.

Argentina’s sovereign dollar bonds fell in the wake of the changes. Notes due in 2030, 2029 and 2038 declined nearly 1 cent, among the most in emerging markets, earlier Monday before paring those losses, according to indicative pricing compiled by Bloomberg.

Congress will begin debating the bill in the lower house on Wednesday morning, after a request by the president of the libertarian bloc.

The latest version of the bill, which Bloomberg reviewed Monday, contains fewer than 400 articles, compared to the nearly 700 included in the original version. It would still allow the privatization of dozens of public companies aside from state oil driller and refiner YPF SA, the partial privatization of a handful of others, and would grant emergency executive powers to remove key energy and transport subsidies.

Milei holds small minorities in both houses of congress and is counting on the support of the pro-business PRO party and more moderate members two other political groups — Union Civica Radical and Hacemos por Nuestro Pais — to push through his reforms. Legislators from the allied blocs are scheduled to meet Monday evening to discuss the watered down proposal, local newspapers reported.

With the fiscal chapter out of the way, the Hacemos bloc is ready to debate the bill on the floor, its president Miguel Angel Pichetto said in an interview Sunday with news site Infobae. The president of the Radicals, Rodrigo de Loredo, told reporters Monday they were still against some privatizations and wouldn’t be rushed into a decision. And PRO chief Cristian Ritondo said his bloc had reached consensus on a majority of issues and was ready to vote in favor of the bill.

The removal of fiscal measures is also a way of punishing provinces, some of which would have seen greater revenues from income tax provisions and others, according to Gabriel Caamano, an economist at Buenos Aires-based Consultora Ledesma. “The allies didn’t want to make concessions so the government said if there’s none for us, there’s none for anybody. Now it’s important that they explain how they’ll compensate the losses,” he said.

Adorni, the presidential spokesman, said at his daily press conference that the provinces would be forced to pay a greater share of the fiscal burden as a result of the delay.

The governor of Cordoba province, Martin Llaryora, who lobbied against the export tax hike, said the government’s austerity program couldn’t be sustained through spending cuts alone. “The decision they made was to remove everything from the fiscal scheme. Hopefully there’s consensus to include what was already accorded because otherwise it’s wasting time that’s not necessary,” he told La Nacion in an interview.

Milei’s government delayed a hike to export duties, a new social security indexation formula and an expansion of the personal income tax base. The foregone revenue amounts to about 1% of gross domestic product, Barclays said Monday, which would still allow the government to reach a primary budget balance but not the 2% surplus target promised under the last review with the International Monetary Fund — for now.

“This is the first evidence of the govern ability challenges we have long argued Milei’s administration would face,” Barclays analyst Pilar Tavella wrote in a report to investors.

The IMF board is scheduled to meet to approve a $4.7 billion disbursement to Argentina under its seventh staff-level review on Wednesday. The Washington-based lender will also allow the country to defer the final review of its $44 billion aid program by two months to November, Reuters reported Monday.

--With assistance from Kevin Simauchi.

(Updates with analyst reaction ad date of congressional debate, plus freshens market moves)

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