Argentina: the 6 controversial points of Milei’s ‘decree’ – 12/23/2023 – Market

On Wednesday night (20), the president of Argentina, Javier Milei, announced on national television the signing of a DNU (Decree of Necessity and Urgency) that will modify or revoke 366 laws that regulate a wide variety of economic activities in the country .

Shortly afterwards, his “decree” faced its first potholes, the most traditional form of spontaneous protest that Argentines use to show their discontent.

There are many criticisms of the proposals, but, for some, the most controversial thing is not the substance of the measures — which, according to the government, seek to free an economy today full of restrictions —, but rather their form.

According to the Constitution, the DNU can only be used in “exceptional circumstances” in which Congress is unable to follow the “ordinary procedures” for enacting laws.

This is something that –according to Milei’s critics– does not happen now.

On the other hand, the measures worry many who feel that deregulation will leave many people destitute.

According to Milei, the state restrictions that accumulated over four Kirchnerist governments stagnated the Argentine economy, driving away possible investments and causing the number of employees in the private sector to remain almost the same, while the number of informal workers grows.

“GDP (Gross Domestic Product) per capita is 15% lower than in 2011, a third of formal workers are poor, we have a low unemployment rate, but this is explained by precarious employment and miserable real wages. Six out of 10 children between zero and 14 years old are poor”, said Milei.

“This is the tragedy we are experiencing as a result of a political and economic model that threatens freedom. Nothing is more important than reversing this tragic trend that puts our future at risk”, he states.

However, critics argue that regulations protect the most vulnerable in society and that freeing the economy will favor businesspeople at the expense of the people.

A people – they claim – already affected by the very strong adjustment in public expenditure announced by the Minister of Economy two days after taking office.

Here we count some of the most controversial points of the DNU, which will come into force on December 29th and which can only be reversed (although not modified) by both chambers of Congress.

1. Employment

Milei announced a “modernization” of the labor regime, which includes some reforms that are controversial because they make dismissal easier and less expensive.

Current labor legislation contemplates a series of compensations that an employee must receive in the event of dismissal and limits the causes of dismissal.

The DNU reduces the salary base and extends the trial period for workers from three to eight months. Furthermore, it allows dismissal if the employee blocks or takes over his work establishment.

Critics say this restricts the legitimate right to strike and cuts labor rights.

Another change is that there will no longer be fines when the employee is not properly registered, which currently leads to a doubling of the remuneration amount.

The concern of many is that the recession, which will certainly be accompanied by austerity measures by the government, could lead companies to lay off employees who, with these new rules, will be less protected.

Economist Dante Sica, former Minister of Production and Labor during Mauricio Macri’s government, told the TN news channel that the measures will discourage the “experimental labor industry” that drives many small and medium-sized companies into bankruptcy — responsible for 70 % of private employment.

2. Pricing

With inflation exceeding 25% per year for a decade and accelerating in the last two years, exceeding 160%, previous governments applied a series of rules to control prices, especially food prices.

The DNU revoked the Ministry of Economy’s price observatory (as Milei said, “to avoid the persecution of companies”).

The truth is that in recent years there has been a lot of State interference in private activity, forcing companies in the food sector to sell some of their products at prices below inflation.

The response of many companies has been to reduce the size of their products or launch new versions that do not comply with current regulations.

But, for a large part of the public, programs like “Precious Prices” gave access to products in the supermarket that they would otherwise not be able to buy.

This is the big concern now that Milei has released all price restrictions, which includes not only supermarket products, but also the tariffs of private medicine companies used by millions of Argentines.

An even bigger problem is the new acceleration of inflation due to the new government’s measures, which, according to most private consultancies, will cause price increases to double, going from less than 13% in November to more than 30% in the last month of the year.

3. Rent

As in many other cities around the world, rental prices have risen exponentially in Buenos Aires following the coronavirus pandemic, a problem made worse by rising local inflation.

To try to protect tenants, Congress approved the Rent Law in 2020, which created a fixed rate for increases and extended contracts from two to three years.

However, the rule deepened the problems, leading many landlords to decide to sell rather than rent, or offer temporary leases.

With the new DNU, which repealed the law, contracts between parties will be free. Owners will even be able to charge in dollars (something that already happens today, informally).

According to Milei, the repeal of what he called the “disastrous leasing law” was necessary “so that the real estate market works well again and so that renting does not become an odyssey.”

But for the many tenants who receive their payments in pesos — a currency that devalued 54% against the dollar in a single day, as part of the “shock therapy” applied by the Milei government — the possibility of having to pay their rent in dollars and that it could have raises above your salary, it’s a problem.

4. Export and import

In the last two decades — with the exception of the period between 2015 and 2019, when Mauricio Macri governed the country — another heavily regulated sector was foreign trade.

With the intention of keeping local prices low, especially meat — a star product on the Argentine table — under Cristina Kirchner’s government, some agricultural exports, Argentina’s main source of dollars, began to be restricted.

However, as international reserves at the Central Bank fell, imports were also limited, which hampered some industries dependent on foreign production factors.

Now, with Milei’s “decree”, “it is prohibited to prohibit exports”, according to the president’s announcement.

His proposal “reforms the customs code to facilitate international trade”, he said.

In practice, this is good news for importing companies which, after a drought that seriously affected the countryside, leaving the Central Bank’s reserves in the red, had to go through a complicated import authorization system.

But the fear is that the opening of trade will increase the prices of local products.

Free imports also pose a threat to some domestic industries that will not be able to compete on price.

However, supporters of the measure maintain that the protectionism granted to industries such as textiles has meant that, due to the lack of competition, clothing in Argentina today costs more and is of lower quality than in many other countries.

On the other hand, they maintain that access to inputs will boost production, strengthening wages and staff hiring.

5. Privatizations

The DNU transforms all state-owned companies into public limited companies “for subsequent privatization”. And repeals the law that prohibited privatizations.

This is in line with one of Milei’s campaign promises, which said that “everything that can be in the hands of the private sector will be in your hands.”

However, the changes introduced by the decree are only a preliminary step towards privatization, which in many cases will require Congressional approval.

Milei said he will first “clean up and increase the value of state-owned companies before considering their sale.”

Interestingly, its DNU also allows “football clubs to become public limited companies if they so wish”, which would also allow their privatization, a project promoted by Macri, Milei’s political partner, which has caused controversy in recent times.

6. Land in foreign hands

It also drew attention — and caused controversy — that Milei’s decree revoked the Land Law, a rule that limits the concentration of land, particularly rural land, and foreign participation in the sector.

The law was set at 15% for all domain ownership or possession of rural land in the national territory for individuals and legal entities in Argentina.

According to the president, the measure seeks to “promote investments”, but in Argentina many are concerned about the possibility that large tracts of land, which are the productive and economic heart of the country, will pass into foreign hands.

On the other hand, the law also prohibited the positioning of land on the edge of permanent bodies of water, and of properties located in border security zones.

In recent years, there have been several controversies over land in foreign hands, including protests against British tycoon Joe Lewis for not allowing access to lakes on his Patagonian lands, to criticism of a space observatory and a port built by China in the country.

This text was originally published here.