Rotting from the inside: Free market pains? No, Argentina's problems spring from a culture of corruption - Trade Talk

Latin Trade, April, 2002 by Jack Epstein

Days after the Argentine government voiced its support for the peso, Abel Edreira, a farm equipment salesman, sat in his Rosario office and brooded. While analysts solemnly speculated about the failure of the free market, Edreira had a simpler view. "We have to throw out all those crooks in the Senate, Congress and Supreme Court who have been robbing us for years," he told me.

Edreira doesn't have much to do but brood. He hasn't sold a new tractor or combine in three months. He goes to his office and sits idly by the phone. Or spends his time debating with other frustrated Argentines who also believe the experts have missed the point, that corruption is at the heart of the crisis.

At least one expert puts it bluntly enough. "While the analysts talk ideology, the fundamental problem is the political [and] business elite who have captured the state," says Luis Moreno Ocampo, Latin American chairman for Transparency International. "Argentina suffers from crony capitalism".

Transparency's 2001 corruption index, which measures a variety of factors, awards Argentina 3.5 points out of a possible 10. Only Guatemala, Venezuela, Ecuador and Bolivia scored lower. Chile received the highest score among Latin American countries, at 7.5, just a notch below the United States at 7.6. Finland ranked highest, at 9.9.

Crooked officials cost Latin Americans and their businesses tens of billions of dollars each year. Corrupt politicians and bureaucrats alike impede economic growth when they siphon off development funds or engage in sweetheart business deals with their chums. They scare off direct foreign investment by demanding bribes.

Argentina's political system encourages shady deals. Members of Congress are elected by party slate, so they owe their allegiance to party heads, not voters. Provincial governors, meanwhile, depend on the federal government for most of their revenues, money they pass on as pork to favored constituents. Union leaders, who control billions of dollars in members' contributions, make covert pacts with employers to hold back wage increases and benefits. Almost everyone cheats on their taxes. Impunity rules.

Argentine corruption reached its modern peak during the decade-long Menem presidency, ending in 1999. The Peronist leader was lionized internationally for beating back hyperinflation and ushering in historic growth, but Menem also contributed to the economic rot that caused this year's collapse.

The Menem years were characterized by regular scandals, including "Swiftgate" (Menem's brother-in-law tried to extort bribes from the U.S meat packing company); "Milkgate" (Menem's personal secretary sold dairy products contaminated with human waste to state programs); and "Yomagate" (three Menem in-laws were implicated as part of an international money laundering ring for drug dealers).

More recently, Menem spent six months under house arrest on charges of sending US$100 million in arms to Croatia and Ecuador despite international arms embargoes. Swiss and Argentine authorities also are investigating an allegation that the former president received a $10 million bribe from Iran to cover up Tehran's alleged role in a 1994 terrorist bombing that killed 85 people at a Jewish community center in Buenos Aires.

Recently toppled President Fernando de la Rua won office on the perception of honesty. Yet even de la Rua was tainted after government officials and close friends were accused of bribing senators.

If Menem can stay out of jail, he'll probably run for president in 2003. The leader in the polls, however, is Elisa Carrio, a congresswoman famous for denouncing the "mafia matrix" of corrupt politicians and bankers.

Perhaps the depth of this economic crisis will move Argentines to choose a new path. They could start by electing a reformer, but that wouldn't be nearly enough. Deep and lasting changes in the political system and in the national culture are needed to end the nation's kleptocracy.

"I just want things to be normal, so I can start selling again," says tractor salesman Edreira. Unless Argentines get serious about their future, "normal" will remain, unfortunately, a happy illusion.

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