Argentine Treasury intervenes in forex market to stabilize peso amid Karina Milei scandal

The Argentine government announced an intervention in the foreign exchange market to stabilize the peso, which suffered a 1.6% devaluation in a single day, while the country’s sovereign bonds plummeted, reaching their lowest level since April 2025. The measure, led by the Treasury under Finance Secretary Pablo Quirno, comes amid political turmoil triggered by corruption allegations involving Karina Milei, sister of President Javier Milei and secretary-general of the Presidency. The accusations, based on leaked audios from former National Agency for Disability (Andis) director Diego Spagnuolo, claim Karina received up to 3% in kickbacks on pharmaceutical contracts. The crisis intensifies ahead of legislative elections in Buenos Aires province, scheduled for September 7, 2025, seen as a critical test for the government. The intervention aims to curb economic and political instability, while markets react with distrust, worsened by a recent electoral defeat in Corrientes.

The decision to intervene in the forex market marks a significant shift in Milei’s economic policy, which had championed a freely floating peso within set bands. The move reflects pressure on the currency, which had already faced “dirty floating” with sporadic interventions in the futures market. The government also raised interest rates for public debt rollovers and tightened forex restrictions on banks to restore investor confidence.

• Measures include a sharp increase in interest rates for public debt.
• Bank reserve requirements were expanded to curb devaluation.
• Restrictions on banks’ access to the forex market were imposed.
• Intervention comes amid allegations damaging the government’s image.

Market reaction to political crisis

The peso’s devaluation and the drop in sovereign bonds, which lost US$0.016 for securities maturing in 2035, reflect market distrust amid the corruption scandal. Analysts from Grit Capital Group, such as Walter Stoeppelwerth, note that the crisis exposes the fragility of investor confidence after 18 months of Milei’s government. The currency, which lost up to 2.8% before recovering partially, faces added pressure due to the upcoming elections. Argentina’s country risk rose above 800 points, complicating access to international markets. Political uncertainty, fueled by allegations against Karina Milei, heightened risk perceptions. Markets also reacted negatively after the audios surfaced, with widespread declines in financial assets.

The scandal involving Karina Milei, accused of receiving 3% kickbacks on contracts with Drogaria Suizo Argentina, gained significant traction. Diego Spagnuolo, former Andis director, was sacked after the audios were made public by the streaming channel Carnaval Stream. The recordings suggest a scheme generating between US$500,000 and US$800,000 monthly, with Karina as a key beneficiary. Argentina’s judiciary, in response, banned the release of further recordings from Casa Rosada, arguing they were illegally obtained and could destabilize the country.

Impact on Buenos Aires elections

The legislative elections in Buenos Aires province, set for September 7, are seen as a gauge for the national elections on October 26, when half the Chamber of Deputies and a third of the Senate will be renewed. Buenos Aires, home to nearly 40% of Argentina’s population, is a traditional stronghold of Peronism, led by former president Cristina Kirchner. The Milei government struggles to consolidate support, especially after the defeat in Corrientes, where the candidate backed by the Freedom Advances party finished fourth.

• Buenos Aires elections will choose 23 senators and 46 deputies.
• The province represents a third of Argentina’s electorate.
• Corrientes defeat signals weaknesses in Milei’s strategy.
• Corruption scandal may sway undecided voters.

The strategy of running without local alliances, driven by Karina Milei, has drawn criticism. Recent incidents, such as stones thrown at Milei’s campaign convoy in Greater Buenos Aires and Karina’s withdrawal from a Corrientes event due to unrest, heightened political tensions. The government, with a 51% disapproval rating according to AtlasIntel, sees its image tarnished by the scandal, which contradicts Milei’s anti-corruption rhetoric.

Economic measures under pressure

The Treasury, led by Pablo Quirno, announced the forex intervention to ensure “liquidity and normal functioning.” The decision breaches the agreement with the IMF, which allowed interventions only if the dollar hit the floor (951 pesos) or ceiling (1,471 pesos) of the fluctuation band. However, the currency had already faced interventions in the futures market, especially when nearing 1,300 pesos. The government also raised interest rates for debt rollovers to curb capital flight and stabilize markets.

The economic crisis compounds a stagnant scenario. Despite controlling inflation, which dropped significantly since Milei’s term began, economic activity fell 0.7% in June, according to the National Institute of Statistics and Censuses (Indec). Consumption and industry remain unrecovered, and foreign investments, anticipated by the government, have fallen short of expectations.

• Inflation was reduced, but the economy faces stagnation.
• Economic activity dropped 0.7% in June, per official data.
• Foreign investments remain below expectations.
• Export sector complains of persistent taxes.

Allegations and government response

The scandal involving Karina Milei began on August 20 with the release of audios attributed to Diego Spagnuolo. He accused Karina and Eduardo “Lule” Menem, undersecretary of Institutional Management, of leading a kickback scheme generating up to US$800,000 monthly. Spagnuolo claims he warned Javier Milei about the irregularities, but the president denied the allegations, calling them “lies” and promising legal action against the former director. Argentina’s judiciary searched Andis and Suizo Argentina offices, seizing US$266,000 in cash and documents.

Karina Milei, who keeps a low profile and avoids interviews, has not directly addressed the allegations. The government, through spokesman Manuel Adorni, labeled the audios an “illegal intelligence operation” to destabilize the country before the elections. The judicial ban on Casa Rosada recordings, issued on September 1, reinforces the government’s damage control strategy.

Repercussions and political challenges

The crisis has damaged the image of Milei’s government, elected on a promise to fight the corrupt “political caste.” The consultancy M&F found that 94.5% of Argentines are aware of the scandal, with 73.2% considering it serious. Over 60% hold Javier and Karina Milei directly responsible, which could impact the Freedom Advances party’s electoral performance. The opposition, led by Peronism, seized the moment to question the government’s credibility and revive investigations into the $Libra cryptocurrency scandal tied to Milei.

The government faces difficulties in Congress, losing 16 of 17 votes since April. The lack of a legislative majority and the dissolution of alliances with the traditional right hinder reform approvals. The October election will be critical in determining whether Milei can expand his congressional base or face two years of greater political instability.

• Scandal is known to 94.5% of Argentines, per M&F.
• 73.2% consider the allegations serious.
• Government lost support from traditional allies in Congress.
• Opposition revives $Libra cryptocurrency investigation.

Economic scenario and electoral outlook

The forex intervention and interest rate hikes aim to contain the crisis, but Morgan Stanley analysts note that the elections pose an immediate hurdle for the economy. Despite this, they believe Milei’s reforms still hold potential to attract investors if the government overcomes the scandal’s impact. Buenos Aires province, with its strong Peronist influence, will be a decisive test for Milei’s popularity, which dropped to 41%, according to Proyección.

The current crisis, combined with economic stagnation and loss of political support, puts the government on the defensive. Milei’s strategy of maintaining an anti-corruption stance while facing allegations within his inner circle threatens his legitimacy. The ability to regain voter and investor confidence will depend on the coming weeks, with the Buenos Aires vote as a critical milestone.