Argentina's President Faced a Crisis. Now a Scandal Shields Him.

(Bloomberg) -- Not long ago, Argentine President Mauricio Macri couldn’t get off the nation’s front pages -- for all the wrong reasons.

From April to June, he faced withering criticism as Argentina’s currency plunged, growth sputtered and inflation surged. The coverage only got worse when Macri ultimately sought aid from the International Monetary Fund, an institution blamed by Argentines for causing the country’s 2001 economic crisis. On top of that, Macri’s political coalition, Cambiemos, came under scrutiny for alleged illegal campaign financing.

Macri’s approval rating hit an all-time low.

Argentina's President Faced a Crisis. Now a Scandal Shields Him.

Jump forward six weeks and the torrent of bad news surrounding Macri is all but gone from the local newspapers, which are instead focused on an expanding corruption probe surrounding Macri’s top political foe and an intense debate on legalizing abortion.

Macri’s approval rating has stabilized for now. The question is how long attention will be diverted from the economy’s problems.

At the center of the alleged corruption is Macri’s longstanding nemesis and predecessor, former President Cristina Fernandez de Kirchner. A newspaper investigation, which has led to more than a dozen arrests, reported that bribes were delivered to Fernandez’s properties while she was president. Fernandez will appear in court Monday to face questioning.

Argentina's President Faced a Crisis. Now a Scandal Shields Him.

“Anything that tarnishes the Kirchners is a gift to Macri,” said Benjamin Gedan, the former White House National Security Council director for South America and head of the Argentina Project. The abortion debate and bribery probe, “give Macri some breathing room, which is what he needs until the economy finds some life.”

The scandal keeps Fernandez, now a senator, in the spotlight while reducing her chances of challenging Macri in next year’s presidential election, analysts say. If Macri wins, it would be a clear victory for investors who widely support his market-friendly reforms and stayed away from Argentina during the previous administrations’ populist 12-year reign.

Despite the economy’s woes, the probe makes Macri’s case to voters easier, analysts say.

“Cambiemos has much better chances of winning the elections,” if Kirchner’s credibility is a key issue, said Juan Germano, the director of Isonomia Consultores in Buenos Aires.

The change in fortune was on full display last week: The peso fell 5.9 percent, but news coverage of the drop was drowned out by the probe and the Senate’s abortion vote.

Fernandez’s positive image has fallen 10 percentage points to 31 percent since the probe began, while Macri’s ticked up to 33 percent,. according to research firm Elypsis.

Possible Arrests

Of course the scandal isn’t all good for Macri. Analysts caution that the graft probe -- in which business executives are accused of providing bribes in exchange for government contracts -- could lead to more arrests of corporate chiefs. That would cool investment and put the already-fragile economy on thinner ice. Borrowing costs have already surged, and economists expect Argentina to fall into a brief recession this year.

And don’t expect Macri to be shielded for long. Gedan, the former White House official, and other experts argue that no matter how big the scandal or meaningful the issue, the economy remains the front-and-center, hot-button issue for voters.

“All the subjects that force people to think about other things outside the economy work to the government’s favor,” said Federico Aurelio, director of consulting firm Aresco. But “all the economy’s issues are much more defining to Argentines’ views of the government.”

For now, though, the momentum seems to be with Macri.

Fernandez’s image suffered an additional blow Tuesday afternoon when her former vice president, Amado Boudou, was sentenced to five years in prison on separate corruption charges. It reinforced the idea that her administration isn’t to be trusted.

“This is good news for Macri,” Daniel Kerner, a managing director at Eurasia Group, wrote in a note. “It shifts attention.”

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