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President announced on have about [the IMF’s] role [in the May 8 — was a politically risky one. The country].”

IMF is deeply unpopular in Argentina, as a ARGENTINA

large portion of the population believes IMF It is very likely that a deal for a credit – austerity policies played a key role in line will be reached in the coming

PCR PCR generating the 2001 economic crisis and weeks; but selling it at home, both to 2002 default, which left one fifth of the opposition politicians and the population unemployed. Opening population at large, will prove

negotiations is a step the complicated. Despite IMF overtures and a administration would have preferred series of reassurances from the not to take, as it risks exacerbating government, surveys indicate large Macri’s declining popularity. However, swathes of the population — including the administration has judged that the a slight majority of Cambiemos voters political costs it will incur are worth the — oppose the measure. On May 25, a reassurance an IMF agreement would national holiday, thousands of give international investors about the protested against the IMF negotiations, as country’s stability. well as high inflation and rising public utility rates, in a march in Buenos Aires. Marches The IMF, for its part, is aware of its poor rejecting the negotiations have also taken reputation in Argentina and has carefully place in other cities around the country. managed its messaging around the potential agreement. Managing Director Treasury Minister Nicolás Dujovne Christine Lagarde has emphasized that any appointed economic coordinator of nine economic program agreed upon will be ministries determined by the Macri administration with the IMF as a partner, and that it will In addition to opening negotiations with the not be an IMF program. The organization IMF, President Macri has restructured his has also stated that the agreement will not economic leadership in an effort to tighten be tied to any particular peso-dollar policy coordination and respond to exchange rate. In recent comments, exchange rate volatility. On May 21, the Lagarde said the IMF has “made a president designated Treasury Minister commitment to President Macri to do [its] Nicolás Dujovne to coordinate economic best to advance quickly and e fficiently in policy and oversee nine ministries — order to change both the perception of Production, Finance, Interior, Labor, Argentina and the perception that people

Exchange rate - Argentine pesos per USD January 2, 2017 - May 30, 2018 26.0

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Transport, Energy, Modernization, Macri vetoes law that would Agroindustry and Tourism. reverse public utility rate hikes

ARGENTINA The consolidation of economic policy under – Another core component of the Macri Dujovne is significant for a number of administration’s plan to reduce the fiscal

PCR PCR reasons. Firstly, it is an acknowledgement deficit — reducing costly public utility that the administration’s past decision to subsidies — has run up against a swell of fragment economic decision-making was a political resistance. In a session that ran mistake (see past analysis in January- into the morning of May 31, the Senate February 2017 PCR). In December 2016, approved a bill to return utility rates to the former Economy Ministry was divided in November 2017 levels and eliminate the two: (1) the Treasury Ministry, with recent set of rate hikes (see April 2018 PCR Dujovne at the helm, and (2) the Finance for background). Five hours later, Cabinet Ministry, led by Luis Caputo. The Chief Marcos Peña announced Macri had appointment of Dujovne, effectively re- vetoed the measure. consolidating economic policymaking, is an unusual acknowledgment of a While the veto was not a surprise — the misstep and shows the seriousness Macri administration had previously with which the government is announced its intention to reject the addressing the situation. Additionally, bill — having to exercise this power is Dujovne has a good relationship with a setback for the administration, which Lagarde and his appointment serves to wanted to avoid the political cost demonstrate greater coordination to the associated with doing so. Indeed, IMF. Cambiemos officials worked tirelessly in the days leading up to the vote to stall the bill’s Dujovne’s ascension is also significant momentum, negotiating with members of in terms of its implications for power the opposition more prone to dialogue in an dynamics within the top echelons of attempt to prevent the need for a veto. On the administration. His new role May 28, two days before the vote, Macri represents a loss in stature for other key even made a direct appeal to opposition actors — namely Secretary of senators to, “not let themselves be guided Interministerial Coordination Mario by the crazy ideas pushed by Cristina Quintana and Secretary of Public Policy Kirchner.” In the end the bill squeaked by Coordination Gustavo Lopetegui, who with exactly the 37 votes in favor that it previously coordinated economic policy needed. However, only a two-thirds between ministries — and to a lesser majority in both houses can overturn extent, Cabinet Chief Marcos Peña, though Macri’s decision, which is unlikely as the Peña remains one of the administration’s measure did not reach this threshold in most powerful actors. either house.

Dujovne has been given the tools and Cabinet Chief Peña asserted that many of support to take the reins in directing the legislators who voted in favor of the bill economic policy, including broad power to knew it was not financially viable, and had intervene in the budget of the nine even privately requested assurances from ministries he is overseeing in an effort to the administration that they would veto it. reduce the fiscal deficit. He is starting out Even given this, the ability of with a focus on cutting executive branch to unite around this bill despite costs, a strong symbolic move to show the differing views on how to address the government is working to lead by example. tarifazos demonstrates its growing unity, with the notable exception of Salta Governor Juan Manuel Urtubey and his brother Senator Rodolfo Urtubey, the most high-profile opposition

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member to vote against the measure. The tarifazos have also made waves within G20 watch: Foreign ministers gather in

Macri’s Cambiemos coalition. Though Buenos Aires ARGENTINA Cambiemos senators voted in line with the – administration against the bill this week, Foreign ministers from G20 countries gathered in Buenos Aires on May 20-21 for the third

PCR PCR criticisms of the increases in early May from National Deputy Elisa Carrió and Mendoza ministerial meeting of Argentina's G20 presidency. The group did not issue a final Governor Alfredo Cornejo, head of the communiqué, however foreign ministers of the Unión Cívica Radical (UCR) Party, resulted G20 Troika (Germany, Argentina and Japan) — in slight changes to the payment schedule closed the meeting with a press conference for the rate hikes (see April 2018 reaffirming their support for a multilateral system with clear rules and free trade and expressed PCR). Although the Cambiemos concern about calls for more protectionism. At the coalition has ultimately rallied behind same time, Argentine Foreign Minister Jorge Macri, these initial statements gave Faurie used the opportunity to highlight G20 fodder to the opposition and have put countries’ support for the Macri administration's economic reforms and Argentina’s increased role a slight strain on the coalition. in the international community.

Politics vs. governability Overall, the foreign ministers managed to skillfully avoid generating controversy over thorny issues (including changing US foreign policy), but the In an effort to distribute the political cost of meeting’s impact was undermined by the absence the veto, the Macri administration has of top officials from major G20 members, including the United States, Russia and the returned to a strategy of putting former European Union, which all sent second-tier President Cristina Fernández de Kirchner officials. However, the meeting served as occasion (CFK) at center stage of its criticism of the for a historic visit from Boris Johnson, the first opposition. In addition to Macri’s reference British Foreign Minister to visit Argentina in 22 years. Johnson laid a wreath at the memorial to to CFK, Peña’s announcement of the veto Argentine soldiers killed during the Malvinas War, focused in on the former president. While the first time a British elected official has focusing criticism on CFK to divide the participated in this kind of ceremony. Cabinet opposition has been part of Cambiemos’ Chief Marcos Peña is set to travel to the United Kingdom during the first week of June, where he winning electoral formula, exacerbating plans to lay a wreath for British soldiers killed in divisions between the governing party the conflict in a reciprocal gesture. The moves are and opposition comes with certain evidence of how much bilateral relations have challenges. Namely, it increases the warmed since Macri took office.

difficulty of the coalition building During the past month, several other high-level necessary to govern and reach G20 meetings have taken place. The B20 private consensus on contentious reforms (see sector working group and W20 working group detailed legislative update below). focused on women’s issues met on the sidelines of the May Organisation for Economic Co-operation and Development (OECD) meetings in Paris. The In order to continue advancing its reform same week, the T20 think tank working group agenda, the Macri administration must now held its Global Solutions Summit in Berlin with carefully work to improve its relationship German Chancellor Angela Merkel as its keynote speaker. with the opposition, which has been growing more strained since December’s pension reform (see December 2017 PCR). spending in next year’s budget, which The administration has been holding must be approved by Congress. On May frequent meetings with governors in the 31, immediately after vetoing the bill to halt opposition party, especially to shore up the tarifazos, Macri traveled to Salta to support for the IMF negotiations. meet with Governor Juan Manuel Urtubey and other governors from Argentina’s These negotiations will become Northwest provinces in an effort to quickly increasingly important in the context turn the page and demonstrate a of the pending IMF agreement. If productive working relationship with successful, the agreement will impact opposition politicians. Yet, separate

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overtures may need to be made to advance coalition building in the national Congress. OECD meetings in Paris: Additional

Governors normally hold a large amount of invitations on hold; Colombia and ARGENTINA

sway over the way senators from their Lithuania become official members – provinces vote, but for the recent tarifazo On May 31, the OECD’s ministerial council

PCR PCR bill, many broke ranks from the position announced it had not made a decision about held by the governor of the province they inviting additional countries to join as members. represent. The Argentine government said that there is unanimous support for allowing it to begin the application process, which takes several years, Union opposition mounts and the delay is due to a lack of consensus on the other countries to admit (Brazil, Bulgaria, Croatia, The public utility rate and IMF Peru and Romania have all requested membership). Legislators from several of developments as well as higher-than- Argentina’s political blocs traveled to the May planned inflation (estimated to reach meeting in Paris in an effort to demonstrate that approximately 26 percent in 2018), mean Argentina’s commitment to joining is shared there are increasing chances of unrest across the political spectrum. Membership would give Argentina a reputational boost and increase from the labor movement and pushes to its ability to attract foreign investment and reduce reopen wage negotiations (paritarias), as borrowing costs. The process for achieving full many unions agreed to increases of membership can take several years from its start. between 15 and 18 percent earlier in the Colombia, which became an official OECD member along with Lithuania on May 31, began the formal year. The powerful truckers union began application process five years ago. Colombia salary negotiations with the Labor Ministry becomes the third Latin American member to join on May 31 asking for a 27 percent increase (after with Mexico and Chile). and has threatened a strike similar to the ongoing trucker strike paralyzing While the recent reshuffle in power Brazil if they are not able to reach an dynamics with the appointment of Dujovne agreement. Several other unions have as economic coordinator offers an already announced strikes to protest opportunity to reset dynamics with the Macri’s veto and the IMF negotiations. opposition, current political dynamics both in Congress and with unions also mean Both hardline union leaders and those who advancing labor reform legislation will are more open to dialogue with the national be more difficult and likely see further government have been in discussions about delays. how to respond to the Macri veto. The day of the veto, the triumvirate leadership of Meanwhile on the investment front, all eyes the powerful General Confederation of are focused on the ongoing IMF Labor (CGT) union met with Senate negotiations, which may be resolved as opposition leader Miguel Pichetto to express soon as next week, and the pending MSCI support for the opposition’s attempt to pass index announcement of whether Argentina the legislation. The same day, the CGT’s will be upgraded from a frontier to an leadership also signed a statement in emerging market classification, which is solidarity with the June 11 protest march scheduled for June. While both would give pushing for laws to combat poverty a strong indication of stability to markets, organized by leftist civil society selling the IMF deal at home will be difficult organizations. no matter the conditions. The administration’s success will depend Growing pressure within Argentina’s on its ability to successfully build major unions to call a general strike consensus with Peronist governors and and their increased cooperation with members of the congressional opposition legislators will complicate opposition, as well as on its ability to the administration’s efforts to retake successfully communicate the control of the agenda and leave the implications of the credit line to the tarifazo debate behind. general public.

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Legislative updates

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– Legislation Principal components Status Difficulty PCR PCR

Capital Markets Ease regulations on foreign Approved May 9 by 158 votes in N/A

Reform (now investment in Argentine market, favor, 70 against and four Law of and restrict government abstentions in the Chamber of Productive intervention in companies. New Deputies. The bill previously Financing) financing scheme for SMEs. passed the Senate on March 21 and was sent back to Chamber of Deputies, to accept modifications.

Competition Creates a clemency program and Approved May 9 by 163 votes in N/A Defense Reform establishes an independent favor, 74 against and one competition authority that can issue abstention in the Chamber of fines for anti-competitive practices. Deputies. The bill previously passed the Senate on April 19 and was sent back to Chamber of Deputies, to accept modifications.

Law to Halt Lowers electricity, water and gas Vetoed May 31 by President Very Difficult Public Utility rates to November 2017 levels, Macri. to Overturn Rate Hikes eliminating recent rate hikes; limits new residential rate increases to the Approved May 31 by 37 votes in same percentage as salary favor, 30 against and six increase; ties SME rate increases to abstentions in the Senate. increases in wholesale prices.

Reduction of A series of three bills to replace a Approved May 30 by 52 votes in N/A Bureaucracy controversial “megadecree” (Decree favor and 11 against in the Laws 27/2018) issued by Macri earlier in Senate. Previously approved by January. A few of the more the Chamber of Deputies on March controversial points were removed 21. in negotiations.

Labor Reform To be considered as separate bills that encapsulate the following measures:

 Creation of Health Technology Presented to Senate April 27. Medium Assessment Agency. Least controversial aspect of reform, likely to be discussed first. No date set for treatment, to be considered by Health Committee.

 Labor “blanqueo” or amnesty. Presented to Senate April 27. No Most Difficult Create incentives for businesses set date for debate, which will to formalize workers. begin in the Labor and Budget  Changes to severance payment Committees.

system to reduce burden on Government had intended to employer. debate in May, but stalled due to pushback from unions over proposed changes to severance payment system.

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 Establish training practices Presented to Senate April 27. Difficult program to replace current Discussion will begin in Labor

internship law. Sets limit on Committee, no date set. ARGENTINA

length of internships, among –

other regulations. PCR PCR Voluntary Proposes decriminalizing and Discussions began in relevant Difficult Interruption of legalizing abortion in the first 14 Chamber of Deputies committees

Pregnancy Law weeks of pregnancy. on March 20, bill set to be debated

on June 13.

Criminal Code Proposed modifications include Chamber of Deputies began Average Reforms changes to parole and asset debating some changes on March forfeiture systems, widening of 21. On March 21, the Chamber house arrest sentences, gave final approval to a bill that introduction of limits to judicial makes changes in the Penal Code discretion in sentencing, definition related to the possession of child of new crimes and increases to pornography with a vote of 211 in sentences for corruption in public favor and 2 abstentions. office, sexual harassment, possession of child pornography.

Gender Equality  Extension of paternity leave (from Certain elements originally Easiest Reform current 2 days to 15). presented as part of labor reform  Extension of parental leave to 10 package. Due to shift in public days for adoption. debate, repackaged as improvements to gender equality  Introduction of 5 days leave for legislation (although still being women undergoing IVF presented as modifications to treatment. Labor Contract Law). Presented  Introduction of 10 days’ leave for March 12 to Chamber of Deputies. victims of gender-based violence.  Reform that states gender or civil status cannot be used as a factor in determining compensation.

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