Milei, the pragmatist, turns the tables and achieves his greatest victory.

It took two years, but Argentine President Javier Milei finally adopted the pragmatic strategy of the politicians he so often criticizes, and with it, achieved his biggest victory in the Argentine Congress. With 135 votes in favor and 115 against, Milei obtained approval for the labor reform, amidst a chaotic scenario, with the country paralyzed by the fourth general strike since his inauguration in December 2023.

The magnitude of the achievement obtained by the Argentine president, considered unimaginable a few months ago, can be seen in the euphoria of the financial market, with the Merval index of the Buenos Aires Stock Exchange registering a rise of over 4% on Friday, February 20th, repeating for the second consecutive day its best result in four months.

The stock market surge the previous day occurred even as the country was paralyzed by a 24-hour general strike to pressure lawmakers to vote against labor reform, in a session that ended up lasting ten hours, extending into the early morning.

Since yesterday afternoon, however, the Milei government's actions indicated the prospect of approval – which explains the initial positive market reaction before the vote. The proposal, which had already received approval from the Senate, now returns to the upper house for a final vote before being signed into law by the Executive branch.

Analysts point to two reasons for the result. First, the government's perception that it was necessary to make some concessions to the unions in order for the negotiations between the Casa Rosada and the Peronist governors, aimed at forcing the deputies of their provinces to approve the reform, to be successful.

“The government’s victory indicates progress in the negotiation process which, unlike the first few months when Milei had an openly hostile attitude towards Congress, has now been conducted by the book , as should be done in a democracy,” says economist Fabio Giambiagi , a researcher at FGV Ibre, who closely follows Argentine politics, a country where he lived during his childhood and adolescence.

The second, more subtle reason reinforces a shift in Argentinians' behavior regarding government reforms, confirmed in the last partial legislative election last year, in which Milei surprisingly managed to increase the number of allied deputies and senators.

“The result shows that the achievements and policies of the Milei government still enjoy a significant level of social acceptance and tolerance, so much so that no real spaces have emerged to question them,” wrote columnist Claudio Jacquelin of the newspaper La Nación , interpreting Milei's historic victory in Congress in one sentence: “The opposition was left only with shouts while the government imposed the law.”

War of narratives

The turning point in the narrative war with the unions began to take shape when the government resisted pressure from the more radical wing of Milei's libertarian party and ended up agreeing to preserve funding sources for the unions.

The labor package removed several benefits that had been accumulated over decades of Peronist governments. The approved law allows for the extension of the daily work shift from 8 to 12 hours, provided that the minimum rest period is respected, reduces employer contributions, and simplifies the calculation of severance pay, excluding bonuses and benefits that are currently included in the calculation base.

The package also brings relevant changes to labor relations. Among them, the creation of a "time bank" system, which allows overtime to be compensated with time off, and new rules to limit the right to strike, with the definition of minimum operating levels in sectors classified as essential.

During the plenary debate, however, lawmakers decided to remove one of the most controversial provisions: the proposal authorizing salary reductions of up to 50% in cases of medical leave unrelated to workplace accidents. The strong reaction within Congress itself led to this retreat, and the point will be re-evaluated by the Senate before the text can advance to the final approval stage.

“The reform is going in the right direction, but with exaggerated narratives, both from critics – who found it dramatic for workers – and from the government, which classified the proposal as something revolutionary,” says Giambiagi, detecting the climate that surrounded the entire process.

“In practice, the Argentine package has similarities to the Brazilian labor reform, but it brings innovations that we adopted more than 20 years ago, such as time banks and the division of vacations into two or three installments,” he adds. “These are correct initiatives, but it sounds exaggerated to think that they will dramatically change the country.”

Even the International Monetary Fund celebrated the result. According to the IMF , the labor reform will help the country improve its economic activity in a structural way, unlike the piecemeal measures that have been implemented in recent months, which are questioned mainly regarding data transparency. "Argentina needs to continue increasing its reserves to have access to private and international credit," warns IMF spokesperson Julie Kozack.

The reform is part of one of the most ambitious economic restructuring programs of the Milei government, aligned with a liberal agenda that seeks to reduce market rigidity and attract foreign investment.

According to Daniel Marcatto, partner at the asset management firm Exploritas , one of the advances of the reform is to lower the cost of formal employment and, indirectly, reduce informality in the labor market, to a level similar to that of the Brazilian market, around 40%.

Marcatto – who studied and worked in Argentina for eight years – states that Milei warned that the remedy for reorganizing the country's economy would be bitter, and he has achieved positive results. According to him, the Argentine president's merit in gaining support for the reforms was showing that the status quo – from politicians and union leaders to the president of the AFA, the Argentine football federation – benefited from the old system of privileges and shady deals.

"He managed to deliver the most difficult task, which was to eliminate the decades-old structural fiscal deficit, at a significant cost of approximately 5% of GDP," he says. Inflation, which was 25.3% per month when he took office, closed January at 2.9%, but remains high on an annual basis – 32.4%.

At the same time, Marcatto observes that Milei has made progress in deregulating the Argentine economy, removing more than a thousand articles, and is rebuilding the country's international reserves. The manager believes that Milei should focus on two issues with a view to his presidential reelection in two years. One is a tax reform to simplify taxes. The other is reform of the Penal Code, "a topic with strong electoral appeal."

For the economy, in addition to resilient inflation, the appreciated exchange rate continues to worry the market. "A possible exchange rate reform, awaited since last year, could happen if the soybean harvest in the middle of the year helps to increase international dollar reserves," says Marcatto.