President Mauricio Macri has proposed changes to several institutions, including the Public Ministry and the Magistrates Council, while proposing a new Penal Code, and seeking to strengthen prosecutors.

• The Argentine judiciary ranks poorly in independence and irregular payments, while corruption cases remain widely unresolved.
• Structural reform to the judiciary is unlikely over the coming year as the government will have to attend to more pressing issues, such as reducing the fiscal deficit, and is likely to lose some support in Congress from the moderate opposition, which will further delay policy.
• Changes to the judiciary are likely to be slow and marginal, such as the appointment of a technocratic federal prosecutor and the removal of judges seen as biased politically or inefficient; this is likely to moderately reduce contract enforcement risks, and slightly increase legal certainties for investors.

On 30 May, the Argentine Senate started reviewing President Mauricio Macri's nomination of judge Inés Weinberg de Roca as the new federal prosecutor. The position has been vacant since the resignation in late 2017 of then federal prosecutor Alejandra Gils Carbó, seen by the government as biased politically towards the opposition Kirchnerism faction of Peronism. Upon taking office in late 2015, Macri launched a program to overhaul the judiciary, which ranks poorly in the World Economic Forum for independence and irregular payments and bribes. According to the Magistrates Council (Consejo de la Magistratura), the body in charge of nominating judges, 92% of corruption cases brought to justice between 1996 and 2016 did not even reach trial. Macri has sought to purge the judiciary of judges seen as biased politically, inefficient, or corrupt, and in late 2017 ousted judge Eduardo Freiler, who was seen as close to Kirchnerism and was being investigated on corruption charges (which he denies).

Judges' rulings are likely to be influenced by payment of bribes and political interference in Argentina, increasing legal uncertainties for investors and contract enforcement risks, while bribery demands have historically been common and large in scale in public works. Several local construction companies - including some with links to former Kirchnerist governments - and former government officials are being investigated on corruption charges, while Brazilian engineering firm Odebrecht has admitted to paying USD35 million to Argentine officials in exchange for contracts between 2007 and 2014.

Macri will seek to strengthen prosecutors

The nomination of Weinberg is part of Macri's efforts to reduce political interference in the judiciary. Our sources in Argentina confirm that she has extensive experience as a judge and no strong links to political parties, despite having already been nominated by Macri in 2012 to serve as justice at the Supreme Court of Buenos Aires. Her nomination must be approved by two-thirds of the Senate, where the ruling Cambiemos (Let's change) coalition does not have a majority. They will therefore have to convince moderate opposition Peronists, led by Miguel Ángel Pichetto, who in the past have supported government policy in Congress, to support her nomination. Despite Weinberg not being their preferred candidate - they had put forward other names, such as Alberto García Lema, a Peronist lawyer- the block has not expressed opposition to Weinberg, suggesting that she is likely to be approved following the required congressional hearings.

The government has also proposed changes to the Public Ministry, mainly setting a five-year term limit for the federal prosecutor (currently they stay in office until they reach 75 years of age), and requiring only a simple majority in Congress to nominate or remove them. A proposed new Penal Code will seek to empower prosecutors by transferring investigative prerogatives to them from judges. The government also will push for changes to the Magistrates Council, which according to Our sources in Argentina is formed by judges with very close links to the political power, particularly under former Kirchernist administrations (2003-15). The 13-member Council includes three senators, three deputies, and one representative of the executive branch (in addition to three judges, two lawyers, and one representative of academia). The government is proposing to increase the number of members to 16, giving more weight to professional members, to reduce political interference.

Government will prioritize reducing fiscal deficit

Argentina is currently dealing with financial turmoil because of a sharp depreciation of the peso in May, which has led the government to seek support from the International Monetary Fund (IMF), an unpopular measure that brings memories of the 2001-02 economic and political crisis (see Argentina: 22 May 2018: Argentina's reshuffled economic team to focus on fiscal deficit reduction; subsidies' cuts and public infrastructure downsizing likely). Over the coming year, the government's priority will be reducing the fiscal deficit and inflation, including downsizing state structures, the public infrastructure investment portfolio, and reducing subsidies for water, gas, electricity, and transport, which is likely to trigger opposition by unions and civil society, raising risks of protests and strikes.

Outlook and implications

The government's efforts to reach a deal with the IMF to stabilize the peso, while trying to convince the population that this is necessary and will not entail a major financial crisis, will delay judiciary reform as the government deals with more pressing issues and attempts to prevent a deeper erosion in its popularity ahead of the 2019 general election (in which Macri is likely to run for re-election). Austerity measures are likely to antagonize those Peronist groups that had previously backed government policy. On 31 May, the Senate approved a bill to freeze utilities tariffs (which was later vetoed by the president), in a vote in which the moderate Peronists voted against the government; this indicates that there is an increasing likelihood that the opposition in Congress will become more aligned, increasing their capacity to block the passage of the government's legislative agenda.

Major structural changes to the judiciary are unlikely before Macri finishes his term, with the proposed reform to the Public Ministry stalled in Congress since late 2017. Additionally, constitutional lawyers are likely to review the bill, potentially delaying it if they find constitutional inconsistencies, and judges are likely to delay discussions if they see its content as undermining their authority. Any progress on judiciary reform is likely to be slow over the coming year, including the nomination of a new, more technocratic federal prosecutor, and removal of further judges seen as biased politically or inefficient. This is likely to moderately reduce contract enforcement risks, while slightly increasing legal certainties for investors.

An indicator of reduced future political interference in the judiciary will be if former or incumbent government officials suspected of being involved in corruption practices are brought to trial and prosecuted. A successful and swift deal with the IMF will be an indicator of further advances of a judiciary reform, as the government will be able to pursue its policy agenda.