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The legislative defeat adds to Milei's mounting troubles, in the nation’s disability agency that has entangled his influential sister and a weakening peso that has prompted the central bank to raise interest rates to commerce-suffocating levels.

Senators last month passed two bills boosting state spending on health care and public universities, jeopardizing to balance the country’s budget.

Some polls show Milei's approval rating dropping below 40% for the first time since he came to office in December 2023, sparking speculation about how long he can last steering long-turbulent Argentina out of a major crisis.

As markets brace for more uncertainty, Argentine stocks have plunged and bond yields have soared, all with just days to go before a provincial election in Buenos Aires on Sunday.

The election of lawmakers in the country's most populous province, a stronghold of Argentina's Peronist opposition, has little influence on national policy. But the result could further rattle markets and raise doubts about ahead of the far more important national midterms in late October.

To fulfill his free-market agenda and restore investor confidence in a country infamous for its , Milei needs to expand his tiny minority in Congress. His party, La Libertad Avanza, currently holds less than 15% of seats.

In the Senate, where the disability law was upheld on Thursday, La Libertad Avanza controls seven out of 72 senate seats. Milei has relied heavily on presidential vetoes to maintain his much-vaunted fiscal surplus, to secure backing to strike down spending bills.

That didn’t work this time, especially in light of the scandal alleging that Milei’s sister and chief of staff, Karina Milei, for people with disabilities.

“When they ask me where the money to fund this law comes from, I’ll tell them it comes from overpricing and bribes,� Guadalupe Tagliaferri, senator from the right-wing PRO party, said during the session.

The new law expanding benefits for people with disabilities would increase costs by 0.28% of the country's gross domestic product this year, according to estimates by the congressional budget office, and 0.46% next year.

“For families, that percentage means the difference between sustaining the life of a person with disabilities or falling into despair,� said centrist senator Alejandra Vigo.

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