Argentine Congress Passes Jobs Law in Test for Macri Reforms

  • Law prohibits companies from firing workers for six months
  • If Macri vetoes, union leaders have threatened to strike

Argentine President Mauricio Macri suffered his first major defeat in Congress on Thursday as his opponents, spurred on by the country’s powerful unions, pushed through legislation that prohibits companies’ from firing workers for six months.

The law had 145 votes in favor and 3 against with 90 abstentions. Macri now has 10 days to decide whether to veto the bill, though he may do it as soon as today, La Nacion reported. Use of the veto would put him on a collision course with labor unions who have threatened to respond with a national strike.

Since assuming power in December, Macri has moved to unwind the controls and protectionist policies implemented by his predecessor, Cristina Fernandez de Kirchner, which he says were strangling the economy and keeping investors at bay. The uneasy peace with the opposition and unions now appears to be over, with the new law exposing the fragility of Macri’s political alliance.

“This is a wakeup call for the government which should have reacted sooner,” said Juan Cruz Diaz, managing director at the regulatory advisory firm Cefeidas Group. “It will have some costs with the unions and the labor sector, but the Macri will frame the veto as a rational economic decision and will use it to show that he has control of the direction of economic policy.”

Macri’s defeat on the jobs bill comes just six week after Congress handed him a victory by approving a settlement with the nation’s disgruntled creditors. The newly elected president engineered passage of the bill, which was instrumental in allowing Argentina to return to international credit markets, without a majority in either house.

Critical Period

The law proposes a moratorium on dismissals for the next six months and seeks to double voluntary severance payments, which currently pay one month’s salary for every year worked at a company. Macri has argued that the law would discourage companies from taking on employees.

The move comes at a delicate moment for Argentina’s economy. Macri has removed currency controls and reduced subsidies that were the main cause of last year’s budget deficit, which at 5.4 percent of gross domestic product was the widest in almost two decades. The result is that inflation is soaring and the economy is stuttering as consumers feel the pinch. Consumer prices rose 6.5 percent in April from March, according the Buenos Aires city index. Consumer confidence fell 18 percent from a year earlier in April, according to a survey by Torcuato Di Tella University.

Macri is betting on a recovery in the second half of the year and is calling on Argentines to bear with him as the measures take effect. The central bank says underlying inflation is already showing signs of slowing.

Forecasts of a pick up in growth have failed to placate the opposition and an attempt to sign a non-binding pact outside Congress between businessmen and unions fell flat when the latter refused to take part.

Macri’s alliance in the lower house chose to abstain from the vote, allowing the law to pass since an alternative bill proposed by former presidential candidate Sergio Massa included concessions for small companies that would have had a high fiscal cost. Cabinet Chief Marcos Pena said yesterday that the government hasn’t decided whether Macri will veto the law completely or choose to strike off certain clauses.

If the law is vetoed, it must return to congress where the opposition will need a two-thirds majority to override Macri’s decision.

“This clearly marks the end of the honeymoon period,” said Raul Aragon, a Buenos Aires-based pollster. “What’s coming is an important battle for Macri.”

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