In response to the bribery allegations involving a close associate, President Javier Milei’s senior officials are taking measures to mitigate the repercussions, which are impacting Argentina’s dollar bonds. This situation is exacerbated by a liquidity crisis that has led to a significant increase in interest rates. Argentina’s dollar bonds are being weighed down by bribery charges against an ally. Eduardo ‘Lule’ Menem, a close aide to the president’s sister and chief-of-staff Karina, asserted on Monday that he committed no wrongdoing in relation to a corruption scandal that emerged last week and captured significant attention in local media over the weekend.
Economy Minister Luis Caputo, in this context, linked market pricing to elevated political risk in anticipation of the forthcoming midterm elections. Rates are expected to return to levels that “we all would like to see them,” he stated in a post on X. Sovereign bonds experienced a decline across the curve on Monday, underperforming their emerging market counterparts. Notes due in 2035 experienced a decline of over 1.6 cents, trading at levels not seen in a month, as reported by data compiled by Bloomberg. Argentina’s official peso depreciated by nearly 2.5 percent, reaching 1,354.7 per US dollar as of 12:18 PM local time. “The corruption case looks pretty serious, especially given the electoral backdrop,” Pedro Siaba Serrate, an economist with Portfolio Personal Inversiones in Buenos Aires, stated via email. “At the end of the day, whether it actually shifts voter behaviour is up for debate,” he added, but there’s no doubt the blow to the currency and sovereign bonds “reflects a significant dose of added uncertainty.”
Monday’s market movement is influenced not only by the electoral ramifications of the scandal but also by “the challenge for the president’s image and credibility,” stated Joaquín Bagues, managing director at local brokerage Grit Capital Group. “The outcome will largely hinge on the resilience and strategic approach of the government team to navigate this situation.” Last week, the president dismissed Diego Spagnuolo, the director of Argentina’s disability agency, ANDIS, following the release of leaked audio messages by local media that purportedly discussed bribery within the organization, which he associated with Menem and Karina Milei.
On Monday morning, Menem released a statement asserting that the scandal represents a “crude political operation” orchestrated by former president Cristina Fernández de Kirchner’s left-wing opposition, aimed at undermining the government just two weeks prior to the elections in Buenos Aires Province. The vote on September 7 in Argentina’s largest province is poised to provide a significant indicator for investors as the national midterms approach in October, during which Milei aims to bolster his libertarian party’s influence in Congress. “No-one has ever mentioned any act of corruption to me, nor have I had any knowledge of anything illegal happening at Andis or any other state agency,” Menem stated. He stated that he could not comment on the authenticity of the audio messages. In the recordings, first published Wednesday, Spagnuolo purportedly states that the bribery scheme generates between US$500,000 and US$800,000 monthly.
Martín Menem, a libertarian lawmaker and cousin of Lule, who holds the position of lower house president, also made an appearance on the local television station A24 to refute any allegations of corruption within Milei’s government. Characterizing the audio messages as having a “questionable origin,” he asserted that their content is “absolutely false.” On the economic and financial fronts, opposition lawmakers have posed a challenge to the primary budget surplus that Milei promotes as his key accomplishment by enacting several spending measures last week. The government implemented liquidity provisions intended to support the peso, which has raised concerns within the commercial banking sector. Caputo recognized that the ensuing increase in borrowing costs poses a threat to Argentina’s economic prospects. However, “we believe that this rate hike will be temporary, because the elections will be very favorable” for Milei’s libertarians. “There could be some impact on the level of activity in the short term,” he added, “but it should recover quickly after the elections.”