The Argentine peso is continuing to face difficulties because of a widening corruption scandal that is gripping the South American nation. This scandal led to the arrest of over a dozen former government officials and business executives.

The news has come at a difficult time for Argentina, whose markets are in jeopardy after building up much positivity thanks to economic growth. The investigation could be a large problem for the country.

Police raids last week led to the arrest of several high-profile former officials and business leaders. The case centers around payments considered illegal to facilitate public service contracts made during the presidency of Cristina Fernandez de Kirchner.

As the markets reacted to the ongoing developments, the century bond marking the debts that Argentina must pay in 2117 hit a record low this Wednesday, while the marker that goes the opposite way, the yields, hit a high of 9.37%. They have already rose 38 basis points since the story started to break in the last few weeks.

At least one company has already had to cancel the sale of a bond due to the current corruption turmoil. This has led to serious concern from investors of a pullout of financial support from businesses in a similar fashion to the “Car Wash” scandal that rocked Brazil in recent years. That scandal collapsed a government and lead the nation into a recession. Argentina hopes to receive support before its own situation snowballs.

 

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The arrests have also rocked Argentina’s currency, with the peso slumping to a two-week low. During trading, it dropped 1% against the dollar. This will pose a problem for the central bank of Argentina, which is already battling serious inflation of 30% and has decided to keep its key interest rate figure capped at 40%.

Across this timeframe, the peso dropped 0.5% against the dollar to a rate of 27.57 per dollar. The country’s Merchval stock index benchmark also fell 1%, forming part of the 6% decline over the last month.

Details emerged last week from Buenos Aires newspaper La Nacion about a former driver under the Fernandez presidency who had transported some $160m in bribes from construction companies to the government offices for a ten-year period from 2005 to 2015.

Fernandez has already received an indictment in the case, having been in charge for much of this time. However, as an Argentinian senator, an immunity clause will cover her. Tuesday saw prosecutors question current President Mauricio Macri’s cousin, who is a construction executive.

Argentina has already gone to the IMF this year to secure the largest bailout in history after the peso hit a record low. The loan that it received, totaling $50bn, is part of a three-year program to manage its deficits and stabilize its currency.

The current probe should pose problems to the Argentine economy if the rising costs of borrowing hit infrastructure works and if more companies come into the mire.

Eduardo Hecker, former Chief of Comision Nacional de Valores, the local securities regulator, said that the “Argentine regulator should intervene quickly in a preventative way” or “the economy will suffer badly”.

Moody’s rating agency, meanwhile, called the news “credit negative” for Argentinian businesses, and current trends suggest that much more will stem from these ongoing developments.