Following twelve hours of heated and at time acrimonious debate the Argentine Senate on early Thursday voted, 37 to 30, to freeze utility prices. President Mauricio Macri had anticipated that if the bill was passed he would veto it because there is no way the budget can stand an additional 1% of GDP deficit.
Allegedly Macri had already drafted the veto, which will sour a political relation with a divided opposition, that still has a majority in Congress and feel the president has been strongly weakened following the run to the dollar and his request of financial support from the International Monetary Fund.
Government sources said that although Macri has ten days to veto the bill, agreed by an unified Peronist opposition, including the Kirchnerites and non Kirchnerites which are a majority, the president planned to do it immediately to ensure the way is clear for the ongoing negotiations with the IMF for a credit support, reinforcing the international reserves of the Central Bank.
According to the approved bill all utility rates (drinking water, power and gas) will be frozen to their last November level and can only be raised in line with the increase of salaries.
However the bill has a limited impact: the freeze applies to all gas supply since this is a national distribution; however for drinking water and power it does not necessarily apply because they depend from the provincial governments, with the exception of the capital Buenos Aires, and part of the Buenos Aires province, also under a privatized national concession.
Under the twelve years of the Kirchner couple governments, utility rates were frozen and financed by subsidies, generating huge budget deficits and lack of investments, with serious consequences for the whole raft of services.
When Macri and his administration took office, one of their first tasks was to improve utility services, promoting investments, but this meant an increase in the rates, triggering growing disenchantment, in part because of the gradualist approach by the new government.
Economy minister Nicolas Dujovne said the freeze would cost the Treasury over US$ 3bn this year and over US$ 4bn next year, when the government is committed to bringing down the budget deficit, the source of domestic inflation and high dependency of international borrowing.
However the divided opposition is not solid, and although the Kirchnerite group is full ahead against the Macri administration, other groupings argued the utility rate increases were excessive, and believed it was above all a political blow for the president, even among members of his own coalition.
In effect once the bill is vetoed, the Argentine congress needs two thirds in each house to resurrect the initiative and the opposition does not have those numbers. So the problem is not the bill but rather future relations in the Legislative.
The heated debate ignored a last minute initiative from the administration to lower the VAT on utility rates, and turned into an open clash particularly with the Kirchnerite group and their twelve year legacy of non financeable subsidies.
Members of the ruling coalition recalled that when the Kirchners reached government, Argentina exported more than US$ 6bn in oil annually, and ended importing over US$ 8bn. This is the real reason behind the increase in the utility rates.