Yes, I think what I wrote above applies here: the string is stored in the "args" variable. When the exception is raised, the traceback contains the *live* frame objects, with position in the bytecode and all local variables. This allows post-mortem debugging, for example.

Try calling PyErr_PrintEx(0) instead of PyErr_Print(), this should clear the exception state without storing it in sys.last_traceback, and the reference will decrease.