Milei’s economic efforts in Argentina come undone amid government’s corruption investigations

Argentina’s financial markets slumped this week as corruption allegations against officials linked to President Javier Milei rattled markets and deepened uncertainty ahead of the October midterm elections.

On Monday, Argentina’s international dollar bonds sank to multi-month lows, with the 2038 sovereign note dropping 2.4 cents to 67.37 cents on the dollar, its weakest level in more than four months, according to LSEG data. The 2041 issue fell nearly 3 cents.

The country’s stock market benchmark, the Merval index (.MERV), slid 4% following a 3.8% decline the previous week. The peso also weakened by almost 3% against the US dollar to 1,356 per greenback. Inflation is still below 2% since Cryptopolitan reported the drop in July.

Foreign exchange markets during Tuesday’s early Asian trading hours took the official US dollar against the Argentine peso to a 1,358.977 rate, little changed from the previous session. The peso has lost 5.02% against the dollar over the past four weeks, but gained 43.24% in the past year.

Argentina politician faces allegations of bribery within disability agency

According to media reports cited by Reuters, there have been several allegations of corruption involving Diego Spagnuolo, the former head of Argentina’s disability agency. Local outlets last week released audio recordings in which a voice resembling Spagnuolo’s can be heard discussing bribery inside the agency.

In the recordings, Spagnuolo alluded to Karina Milei, the president’s sister and chief of staff, as receiving illicit payments. He reportedly complained that he had informed the president about the misconduct but that “they didn’t fix anything.”

Authorities raided several properties on Friday, including Spagnuolo’s residence, seizing mobile phones and a cash-counting machine. Media said the search was part of a much larger criminal probe within the government department.

Spagnuolo was dismissed from his post after the revelations, although the authenticity of the audio has not been verified. Cabinet chief Guillermo Francos said President Milei told him Spagnuolo had never raised bribery allegations directly to his office.

Milei dismisses claims as political attacks

President Milei has so far avoided making any direct comments to the scandal, even though many were waiting for his input during a speech on Monday. The 54-year-old Argentine head of state instead coined the reports as attempts by opposition groups to damage his administration before the October midterms. 

Opposition legislators demanded that health officials overseeing the disability agency testify before Congress.

Marcelo Garcia, director for the Americas at risk consultancy Horizon Engage, said investors fear the scandal could weaken Milei’s ability to deliver reforms.

“It affects the government’s capacity to be reputable enough to continue to introduce tough reform in the next two years,” Garcia surmised. He added the allegations are matters of substance because they touch on social programs, and without admission or action, Milei shows he “doesn’t care for the weak and the poor.”

Lawmakers faced a setback last week after failing to overturn a presidential veto on disability aid. They could use the October elections to push for a referendum on Milei’s market reforms and budget cuts. 

Market turbulence, corruption investigations, and economic weakness has left investors uneasy. Analysts believe Milei’s combative political style, which had previously pulled Argentina out of years of recession, are going to risk taking it back down if scandals erode his popular support.

“The Milei political strategy of continued confrontation with everyone requires him to be very popular,” Garcia explained. “Any scandal that chips away at that popularity complicates his economic agenda.”