Congress was sealed off from protesters ahead of today's planned vote on the pension reform bill. (Télam/Carlos Brigo)

Congress in downtown Buenos Aires was rocked today by violence both inside and outside the building as police as various armed forces clashed with protesters from various political organizations who had mobilized against the government’s controversial pension reform that was supposed to be debated today. Tear gas, rubber bullets, water cannons, sticks and stones set the stage ahead of the debate.

The debate in the Lower House was eventually called off after a confusing series of events pertaining to whether or not President Macri’s Cambiemos coalition had reached the quorum in order for the debate to begin.

In addition, the opposition argued that police action had made democratic debate impossible, with some lawmakers seeking medical attention. Several complained of a “militarized” Congress due to the heavy security presence and Cambiemos also accused the opposition of underhanded behavior and of attacking Speaker Emilio Monzó and the institution of Congress itself. In that context of accusations debate was called off, long before it was clear whether the government had enough support in Congress to pass the measure into law.

After the dramatic scenes in Congress throughout the day, the centre of attention swiftly moved to the Casa Rosada, where Macri’s Cabinet was summoned for an urgent meeting. Rumours swirled that Macri would force through the proposed changes with a decree, which was immediate consternation not only by the opposition and the unions but also by government ally Elisa Carrió. The immediate pressure seemed to have an impact as there are reports that other options are being considered. Both Clarín and La Nación have reported that nonetheless a decree has been signed by every minister in the Cabinet and that only Macri’s signature is missing.

At the heart of the tension was the government’s plan to change the way adjustments to pensions are calculated. So here is an explainer for those of you who don’t understand what is happening behind the bill that has set Argentine politics on edge.

First of all, how does the current system pension work?

The current pension system is run by the ANSES social security agency and is updated in March and September of every year. The formula used to calculate pension adjustments is based on a formula that uses as variables ANSES revenues as well as an indicator of salaries in the formal sector. The variables are weighted equally.

According to fact-checking site Chequeado, the current system dates to 2009 and is enshrined in law. Prior to that, pensions were set on a discretionary basis by the Executive.

Victory Front caucus chair Agustín Rossi (center) and Speaker Emilio Monzó (facing Rossi) confer during today's heated session. (Télam / Osvaldo Fanton)
Victory Front caucus chair Agustín Rossi (center) and Speaker Emilio Monzó (facing Rossi) confer during today’s heated session. (Télam / Osvaldo Fanton)

Got it. So what is the government proposing?

This biggest change to the pension adjustment system in this bill is a proposal to modify the formula the way calculations for adjustments are made. The Mauricio Macri administration has proposed that adjustments be based on the INDEC’s Consumer Price Index and trends in the formal labor market. Inflation figures are weighted to make up 70 percent of the adjustment.

Adjustments will be made on a quarterly basis in March, June, September and December. The adjustments will have a lag of three months, such that any changes to the pensions will be based on inflation and revenue figures from the previous. The first payment in March, however, would be significantly lower than if the current system is maintained because of the transition between the two systems.

OK. Sounds complex. How do the formulas compare?

According to various estimates, the existing formula is likely to come to a nominal increase of between 24 and 25 percent in 2018. With the proposed formula, estimates suggest that pensions would see a nominal increase of between 20 and 22 percent.

While estimates by economists on next year’s inflation vary, both formulas are expected to result in real increases. Crucially, the real increase in pensions with the current system is expected to be several percentage points greater in 2018 than after a reform.

According to three economic consulting firms that spoke to La Nación, the existing system would result in a real increase in purchasing power of pensions of 6.4 percent in 2018 and 1.5 percent after a change. Abeceb suggests a 27.1 nominal increase under current rules, five percentage points more than after the reform. For Eco Go, the new formula will mean a 20.6 percent nominal increase whereas staying the course is expected to result in pensions that are higher by 24.4 percent.

Labour Minister Jorge Triaca said this week that he expects the pensions to go up by 21.8 percent if the changes are accepted and that considering an inflation of 16.6 percent, a real increase of 4.5 percent. The government did not publish an estimate of how pensions would be adjusted in 2018 under the current system.

The IARAF has suggested that with the new system, real pensions would grow by 4.6 percent compared to their current levels by December 2019. That would bring pensions back to their highest ever levels, which were reached in September 2015.

Why is the government proposing the change?

According to the Macri administration, the existing framework “is not sustainable in the long term and hides serious inequities.” At the same time, they argue that the new format would guarantee less volatility in pensions and protects their purchasing power. As a result of high inflation and recessions, pensions lost value in real terms in 2016, 2014, and 2010.

Luciano Laspina, chair of the Budget committee in the Lower House and a PRO lawmaker, has argued that the proposed formula matches “those used by developed countries.”

The Senate approved the bill last month by a margin of 43 votes for, 23 against and 3 abstentions. The votes in support of the bill were drawn from Cambiemos but also from senators from the Partido Justicialista (PJ) that are under the leadership of Senator Miguel Angel Pichetto (Río Negro). Senators on the left and those who identify former president Cristina Fernández de Kirchner as their leader voted against the bill.

Who is mainly opposing the bill?

Broadly speaking, leftists, Kirchnernites, the remnants of Sergio Massa’s Renewal Front and unions have been critical of the bill. They have voted or mobilized against the changes, calling the proposal a cutback in pensions and accusing the government of seeking to take 100 billion pesos away from pensioners.

Agustín Rossi, chair of the Victory Front in the Lower House said that “we believe that this is a reform that hurts pensioners because the index is being modified downwards. The index that is being proposed by the government has a high component of the Consumer Price Index, an average index that is provided by the INDEC. In general, the basket of goods that pensioners have costs more than that.” Rossi was speaking after the heated committee meeting that signed off on the pension reform bill.

Mirta Tundis, a member the Renewal Front and an expert in pension matters, called the reform “disastrous.” She added that in March, under the current system, pensioners could expect a 13 percent increase. The first increase under the new system would be equivalent to less than half of that. Tundis pointed to the reduced increase in the context of utilities increases. Graciela Camaño, a veteran of Congress in the Renewal Front, also played her part in ensuring that the session was called off and signaled her opposition the bill.

Lawmaker Nicolás del Caño of the leftist PTS party spoke of “the attack that our pensioners and the working class will undoubtedly suffer.”

The CGT umbrella union called a national strike for tomorrow in protest of the vote, but it has been called off after today’s cancellation of the Lower House session.

What happens next?

After today’s cancellation of the vote, the government has insisted that it retains enough support within Congress to push it through. However, it has yet to set a date for another vote. “We’re going to work to see when the best time to implement the broad consensus that has been achieved is,” said Cabinet Chief Marcos Peña at a press conference this afternoon.