Argentina Shifts Financial Risk to Banks as Political Crisis Deepens

Argentina’s central bank has raised bank reserve requirements again, deepening its monetary squeeze as politics grows more unstable.

Through Communication “A” 8306, the Central Bank of Argentina (BCRA) confirmed that from September 1 banks must set aside an additional 3.5 percentage points of deposits as reserves.

Unusually, they can meet this requirement with Treasury bonds purchased in the August 27 auction, provided the securities carry at least a 60-day maturity.

This is the third tightening step in August. Earlier, the BCRA lifted total encajes from 40 to 50 percent and ordered banks to meet them daily instead of monthly.

These changes followed a weak debt rollover, when investors renewed only about 61 percent of maturing peso securities. The Treasury now faces about 57 billion dollars equivalent in upcoming local debt maturities.

To refinance, it offers peso-linked LECAP bills, TAMAR notes tied to deposit rates, and dollar-linked securities. By allowing banks to count those securities as reserves, the BCRA drains pesos from circulation while also creating demand for the government’s bonds.

Markets reacted nervously. The S&P Merval index fell about four percent on Monday and another one percent on Tuesday midday. The wholesale peso slid 3.08 percent on Monday but regained 0.59 percent the next day, closing at 1,355 per dollar.

The financial stress coincides with a corruption scandal shaking the Administration for National Disability (ANDIS). Leaked audio recordings attributed to former director Diego Spagnuolo describe alleged kickbacks on contracts and mention presidential aides Karina Milei and Eduardo “Lule” Menem.

Courts have confirmed searches, seized safety boxes, and removed Spagnuolo from office. Both aides deny involvement, and investigations continue.

The timing complicates President Javier Milei’s push for more congressional seats in the October 26 midterm elections. His government campaigned on cleaning up politics, yet the scandal now threatens that message.

Behind the figures lies a simple tension. Argentina must convince investors it can repay debt without printing pesos, while also calming public anger over corruption.

The central bank’s tightening pulls money out of circulation and supports Treasury auctions, but it squeezes banks and borrowers. With elections near, every move carries both financial and political risk.