Argentina’s Senate went against the government’s wishes on Thursday by approving an increase in pension spending that is estimated to cost about 0.4% of the country’s gross domestic product. This move dealt a significant blow to President Javier Milei’s strict austerity program, highlighting his struggle to gain support in Congress where leftist and centrist lawmakers hold power.

The bill, previously passed in the lower house in June, was approved by the Senate in a 61-8 vote. Most of the lawmakers who opposed the bill were from Milei’s party, indicating a lack of compromise between the president’s allies and other right-wing parties. President Milei has pledged to veto any legislation that goes against his “zero deficit” plan, but lawmakers could potentially override his veto with a two-thirds majority vote.

Milei’s libertarian party, controlling less than 15% of congressional seats and only seven out of 72 Senate seats, has heavily relied on executive decrees to implement drastic cuts in state expenditure and deregulate the economy. While he secured his first legislative win in June with an economic reform bill, the recent pension law’s approval raised concerns among investors about Milei’s ability to execute his radical economic agenda to revive Argentina’s struggling economy, plagued by debt defaults and high inflation.

The pension reform entails an over 8% increase in retirement benefits to address the country’s staggering 260% annual inflation rate and the diminishing value of pensions. Supporters of the law argue that pensions in Argentina have lost 45% of their value since 2017 due to rising prices and currency devaluation. However, Milei’s allies caution that the law could further strain the country’s finances as it is anticipated to consume 0.4% of GDP this year and 0.8% next year.

Tensions between Milei and his congressional opponents have been ongoing since he ascended to power last December amid widespread public discontent with Argentina’s political establishment. Despite Milei’s efforts to implement stringent economic measures, the Senate’s approval of the pension law signifies a significant setback for his administration.