Argentina: Senate passes 2019 budget, tax increases to boost economy

Argentina's Senate gave final approval to the government's 2019 budget bill early on Thursday, locking in unpopular spending cuts and tax increases included in the country's financing deal with the International Monetary Fund.

The proposal passed the Senate 45 to 24 after a 13-hour debate that lasted into the early hours of the morning, in which the opposition decried reductions in the funding of education and other programs, including cash transfers to the provinces for roads and other public works projects.

The passage was a much-needed victory for President Mauricio Macri, a business-friendly policymaker struggling to revive an ailing economy, as he prepares to host a meeting of G20 leaders late this month and run for re-election next year.

The budget proposal was approved by the lower house of Congress last month. Its passage showed Macri can still whip votes in Congress despite a recession and high inflation that have damaged his popularity.

Former President Cristina Fernandez, now an opposition senator, said during the debate that the budget punished the Argentine people with "useless sacrifice ... under the aegis of International Monetary Fund planning".

The fund last month increased the size of a standby financing agreement for Argentina to $56.3 billion in a deal that toughens fiscal measures. The budget aims to cut the primary fiscal deficit, projected at 2.7 percent of gross domestic product in 2018, to zero next year.

The budget projects 2019 inflation at 23 percent while the economy shrinks 0.5 percent.

Macri is expected to run for a second term in October 2019 despite the public backlash against his belt-tightening program. He agreed to a $50 billion IMF deal in June, hoping it would stop a run on the peso. But the currency kept falling, forcing him to renegotiate the agreement.

Cutting the deficit during a presidential election year is almost unheard of in Argentina, where wide swaths of the population have come to rely on welfare programs and subsidies that helped the country recover from a 2002 economic crisis that tossed millions of middle-class Argentines into poverty.

Government spending cuts are being made all the more painful by a recession that began earlier this year after a drought wrecked the country's main cash crop, soybeans.

The fund expects Latin America's third-biggest economy to contract by 2.8 percent this year and by 1.7 percent in 2019. 

(With inputs from agencies.)