Corruption claims and political miscalculations

Things are getting hairy out there for the Javier Milei administration. With the election campaign in full swing, the pressure is on for the self-proclaimed “anarcho-capitalist” inhabiting the Casa Rosada to execute a “purple tide” and produce a knockout result in October’s midterm elections, setting La Libertad Avanza up nicely for a successful second half of his mandate. The President makes it sound easy, noting that regardless of any attempt at disrupting their course, they will crush their opponents electorally, be it provincial governors or the opposition in Congress. Reality, however, appears to be more complex and signs of financial stress are sounding the alarm bells. One early such warning came a few weeks ago when JPMorgan Chase published a report for its clients in which it noted it was “taking a breather” on Argentine assets until after the election. This generated pressure on the peso-dollar exchange rate, which was also feeling the heat of the current account deficit that came as a consequence of the “strong peso” policy being pursued by Milei and Economy Minister Luis ‘Toto’ Caputo.

The Milei government must defend its hard-fought macroeconomic stability at all costs, at least until the election. That’s why Caputo and Milei went on the offensive, making the rounds with their typical, friendly interviewers to accuse provincial governors and the opposition at large of seeking to destabilise the government. There was a controversial video streamed on Alejandro Fantino’s YouTube channel in which he suggested that the political class was looking to wreck havoc by passing legislation that would revert the budget surplus – one of the pillars of the Caputo-Milei plan. The apocalyptic predictions laid out by Fantino were attributed to none other than Luis Caputo in a supposed “off-the-record” conversation that the influencer/host chose to reveal. It went viral on social media in an edited version that was initially said to be fake by people close to the government. Ultimately, Caputo was forced to come out and give an explanation in which he suggested he said the exact opposite to Fantino: given the budget surplus, minor tensions would be absorbed by the economy, so that while there could be some turbulence, everything would be under control. But the damage was done, and neither Milei nor Caputo were able to generate fear and block provincial governors from moving forward with a series of bills that will force a presidential veto. Thus, a broad opposition passed legislation increasing pension payments, reinstating a moratorium for retirees and other bills that increase spending, putting them on a coalition course with the Casa Rosada, which sought to avoid this outcome.

Milei has managed to maintain strong figures in opinion polls, while the electoral victory over Mauricio Macri’s PRO in local elections in Buenos Aires City put wind into the libertarian sails. La Libertad Avanza has managed to absorb PRO going into the local elections in Buenos Aires Province, where Cristina Fernández de Kirchner has been barred from running given the confirmation of her guilty sentence in the ‘Vialidad’ public works corruption case by the Supreme Court. Given record low turnouts through the multiple local elections held this year, incumbents fear that what was once a minor election could be seen as a referendum only two years into their mandates. Milei’s LLA coalition hasn’t proven particularly strong yet it commands an important number of votes that could sway elections, particularly given the fragmented state of the political ecosystem. The President and his Presidential Chief-of-Staff, sister Karina Milei, are looking to leverage their political capital in order to build out LLA as a national force while giving them legislative muscle in order to pass bills and sustain their veto. Continuing to lower inflation is a must while counting with the support of a portion of the electorate that remains disillusioned with the “political caste” and believes in the “Milei myth.”

Among the most damaging circumstances for Milei’s credibility with his hardcore electorate are accusations of corruption. Polling firm AtlasIntel’s latest report suggests that corruption has maintained its place on the podium of major problems for society for at least the last nine months. This is why the government has continued to struggle with the latest (highly visual) case of undeclared suitcases in a private jet owned by a close associate of the La Libertad Avanza administration. While the flight arrived here in late February, only recently has an investigation shed light on how a single passenger, Laura Belén Arrieta, apparently made her way through Customs together with her crew members without being subjected to any of the routine controls. The prosecutors probing the case indicate they had at least 10 bags, of which only five had been declared. There were doubts as to where the plane had actually come from, whether it was Fort Lauderdale or Opa-Locka airport, while the pilots also incorrectly declared their final destination. All of these suspicions were backed up by audiovisual material that was leaked to the media, showing Arrieta in a position of utmost impunity as she made her way through the airport. 

Arrieta, it’s worth nothing, is linked to the CPAC conservative think tank which showers praise on Donald Trump and Javier Milei. She’s also employed by Leonardo Scaturicce, a businessman specialised in “commercial investigations” that has deep links with Argentina’s intelligence and spy agency, according to Noticias journalist Rodis Recalt. Scaturicce has major government contracts and is close with controversial political strategist Santiago Caputo, to the point where he recommended the appointment of Andrés Vazquez to head the DGI tax office. The DGI, or Dirección General Impositiva, is responsible for the screening of potential evasion at the nation’s frontiers.

The level of suspicion generated by Arrieta’s suitcases erodes the Milei administration’s credibility with a part of their electorate that believes they aren’t in politics for the money (that’s what the caste was in it for!). Yet, other situations such as the ‘$LIBRA’ cryptocurrency scandal also conspire to keep the President and his entourage in the crosshairs. A recent investigation by cryptocurrency analyst Fernando Molina identified a series of payments made by the memecoin’s mastermind Hayden Mark Davis at key moments of the investigation. Molina found that less than an hour after Davis met with Milei to take the now-infamous selfie that was posted on the President’s social media account, the crypto-scammer transferred US$507,500 to an undisclosed digital wallet. A few months later, he transferred nearly US$4.5 million in four transactions to another unidentified wallet. Coincidentally, the following day Mauricio Novelli – the crypto-investor who took the $LIBRA crew to the Casa Rosada – was recorded by CCTV entering the private vaults of his bank to access a safety deposit box. Finally, the day before $LIBRA was launched, Davis made a US$1.275-million transfer to another unidentified wallet. While the President says his name has been cleared by the Anti-Corruption Office and that $LIBRA was a transaction between private individuals, its recurrence generates continued reputational risk for Milei.

As mentioned last week, certain groups of elites have lost faith in the Milei administration and believe it will begin to fail in one way or another. While this doesn’t mean collapse per se, it does suggest a deterioration in its capacity to govern and execute its policy plan. Whether it’s their political strategy or accusations of corruption, Milei and his team are currently under a lot of pressure, which increases unforced errors. They remain confident to make it out of the electoral season in one piece, but it will get increasingly more difficult for them to sustain their strategy of picking fights with everyone, everywhere, at the same time.