Pressure grows on Milei ahead of Argentina midterm elections

By Leila Miller

BUENOS AIRES (Reuters) -Argentina's President Javier Milei is facing increasing pressure over a bribery scandal and growing unease over public spending as he enters a pivotal election season that could define his government's grip on power.

The fiery, shaggy-haired leader campaigned on an anti-establishment, anti-corruption platform. He won hefty voter support in the 2023 presidential election over his pledges to cut state spending and dramatically reduce what he calls the "cancer" of inflation to get Argentina's economy back on track.

Milei has indeed successfully driven down the monthly inflation rate - from 25% when he took office to about 2% in July - and achieved a budget surplus for the first time in more than a decade.

But his government is facing mounting pressure as a corruption scandal has dominated headlines, raising questions over the political fallout for upcoming legislative elections.

At the end of August, local media published audio recordings that appeared to feature a senior government official discussing bribery and suggesting Milei's sister and chief of staff, Karina Milei, was getting kickback payments. Javier Milei has dismissed the allegations as lies and Karina Milei has not commented on them.

The president's approval rating was already on the decline, which political scientists attributed to frustration with his tight austerity measures. It dropped to 39% in August, according to a poll by Trespuntozero taken after the corruption allegations emerged - the lowest it had recorded for Milei to date and a drop from 48% in July. Another recent survey by Management & Fit found that 73% of people were concerned by the bribery scandal.

The local stock market benchmark index fell over 14% last month, and this week touched its lowest since early April.

Still, it is unclear how much real effect the turmoil will have on the election. Many of Milei's supporters have shrugged off the allegations, echoing the president's assertion that he is the victim of an operation orchestrated by the opposition. 

"They are all lies," said Freddie Correa, 75, as he helped carry a large banner with Milei's face at a campaign event on Wednesday in Buenos Aires province. "They are only allegations to take our votes."

ENDING KIRCHNERISMO

Milei has pitched this weekend's Buenos Aires province legislative elections and October's midterm elections as an opportunity to squash Kirchnerismo, the opposition movement led by former president Cristina Kirchner. Facundo Cruz, a political consultant in Buenos Aires, said that the divided political climate means that Milei won't lose much support over the scandal.

"It's a very polarized election," he said. "There's this idea that you need to defend the government despite this."

The September 7 elections in Buenos Aires province, where nearly 40% of the country's voters reside, will be a challenge for Milei in what has traditionally been a stronghold of the Peronist opposition.

On October 26, Argentines will vote to fill seats in Congress, where Milei's government currently has a minority.

A bigger congressional bloc would give him a freer hand to more easily block opposition measures seeking to strike down his reforms. In the face of Milei's austerity policies, opposition legislators have sought to increase spending on health and education, and on Thursday for the first time overturned his veto, on a bill to increase the budget to help people with disabilities.

A weak showing in the elections would increase uncertainty about his ability to enact reforms that many investors seek.

With markets on edge, Argentina's Treasury said it would begin to intervene in the foreign exchange market this week, seeking to stabilize the peso - a move that clashes with Milei's free-market ideology.

"I think an isolated case of corruption is one thing, but... when mixed with economic turbulence and political difficulties, that is a much more difficult combination for the government," said Buenos Aires-based political consultant Ana Iparraguirre.

(Reporting by Leila Miller; editing by Cassandra Garrison and Rosalba O'Brien)