Corruption Governability and Trust: the Case Of Argentina

Corruption, Governability, and Trust: The Case of Argentina

Jane Marcus-Delgado, Ph.D. Assistant Professor

International Studies Program College of Staten Island

City University of New York 2800 Victory Boulevard Staten Island, NY 10314

e-mail: [email protected]

Prepared for American Political Science Association meetings, August 29, 2002, Boston, Massachusetts

Marcus-Delgado, page 1

Corruption, Governability, and Trust: The Case of Argentina

On December 20, 2001, Argentine President Fernando De la Rua was forced out of his job. His downfall occurred during weeks of massive demonstrations and social unrest that mobilized a wide spectrum of protesters – from the poorer sectors of the provinces to middle-class Buenos Aires residents – to clamor for his ouster. Throughout the countryside citizens banged on pots and pans in an action known as a “cacerolazo” to demand a presidential response to the nation’s political and economic ills. And the executive’s abrupt departure, his answer to their exhortations, signaled his government’s failure to overcome the nation’s governability crisis.

In 2001, the Argentine presidency seemed an unlikely candidate for collapse. The country

had returned to civilian rule in 1983 and had elected three presidents who alternated in power among the principal political forces. The military had retreated from politics. Institutionally, the judiciary, legislature, and provincial leadership seemed to be in working order, and there was a division of power between central and subnational authorities. With nearly three-quarters of its population supporting democracy, Argentina ranked near the top of Latin American nations in its commitment to the system (Latinobarómetro, 2001). Other indicators – including an organized civil society, independent media, and well-established political parties – all contributed to Argentina’s improving image as a viable democracy.

President De la Rua was elected in 1999 as head of an alliance created by the traditional

Radical Party (UCR) and its popular partner, the Front for a Country in Solidarity (FREPASO). His government’s middle-of-the-road economic and social policies did not veer sharply from those of its Peronist (PJ or Partido Justicialista) predecessor, who had undertaken a major market-oriented reform program during his decade in office. But for several decades Argentina had been on an economic roller coaster, going from a severe economic crisis in the 1980s to becoming a neoliberal success story in the early 1990s. By the century’s end, the program’s material benefits had worn thin and Argentina had slipped into a spiral of recession, skyrocketing capital flight, stagnant growth, unprecedented unemployment, and an external debt of over US$100 billion – the latter exceeding 50 percent of GDP by 2001 (Feldstein, 2002). Despite tens of billions of dollars in IMF bailouts, the economy was irreversibly careening toward default. And years of economic upheaval took a toll on Argentina’s governability. As the economy collapsed in 2001, the president’s inability to lead was laid bare for public scrutiny.

This paper examines why the De la Rua presidency ended at its midpoint. The severity of

the economic crisis and the president’s failure to manage it successfully appear as the primary culprits. This study addresses an additional factor – the political culture of corruption, populism, and patronage – that contributed to De la Rua’s demise. My explanation emphasizes the legacy of the former president, Peronist Carlos Menem (1989-1999), who applied his free market program in a populist spirit, using his autocratic, personalistic governing style to implement reforms incompletely, capriciously, and illicitly. Menem’s policies had several consequences: first, he left behind unfinished, uneven and politically unpopular portions of his economic reforms for his successor to complete; second, he debilitated horizontal accountability by


circumventing and overriding governmental institutions; and third, his rampant dishonesty destroyed the already-tenuous trust between the Argentine leadership and its citizens. De la Rua confronted the challenges of rebuilding the economy and creating an accountable, transparent government – all in the context of, and in opposition to, a Peronist-dominated political arena.

This study stresses that the confluence of this legacy, De la Rua’s weak leadership, and the profound economic crisis all contributed to the president’s downfall. It focuses on political corruption, acknowledging that illicit activities alone are rarely sufficient to end an executive’s career. As Stokes (2001: 135) observes, “[I]n fact, corruption as a moral issue has little resonance… Accusations of corruption are more likely to arise when economic times are bad than in response to solid evidence of misbehavior by politicians.” This assertion holds true for several high- level corruption scandals in recent Latin American history – in the cases of Venezuela’s Carlos Andrés Pérez and Brazil’s Carlos Collor de Mello, both presidents were removed from office on charges of corruption as their nations experienced economic downturns. They stand in contrast to Carlos Menem who, despite flagrant abuses of his office, maintained public support throughout the 1990s period of relative stability. As this paper explores, his support was based on a combination of economic performance, party loyalty, and the nature of Argentine political culture – all three of which proved disastrous for his successor.

While it is understood that citizens may tolerate their officials’ illicit behavior under favorable economic conditions, their leaders’ activities over time have a deleterious effect on people’s attitudes toward the political class. And President De la Rua’s fall illustrates several fundamental flaws in Argentine governance. The first is obvious: elected officials should remain in office throughout their designated term. Regardless of the severity of the economic crisis or the president’s weaknesses, in a democracy with strong institutions and at least a semi- loyal opposition, the presidency should not crumble. Further, as O’Donnell (2001) asserts, to understand polyarchy fully, analysts must also consider “particularism,” which in the Argentine case would include patronage, clientelism, and, at times, corruption. He asserts that there may be a democratic equilibrium in systems in which particularism becomes institutionalized and an informal “rule of the game.” If such “rules” are nonuniversalistic, arbitrary, and unevenly applied, the result is a weaker form of polyarchy (O’Donnell, 2001 and Gunther et al, 2001). Such is the state, this study asserts, of the Argentine government today.

These phenomena not only compromise the regime’s legitimacy, they also erode the

public trust. They create power imbalances that are disincentives for political engagement, and also for economic participation – potential taxpayers may evade their responsibilities if their money is misused or stolen. Expressions of popular discontent can erupt, causing work stoppages, strikes, or civil disruptions at best, and violence, looting, and state repression, at worst. Argentina has taken all of these actions, none of which offers a viable solution to the governability problem.

Corruption is “a general term covering misuse of authority as a result of considerations of personal gain, which need not be monetary” (Heidenheimer and Johnston, 2002:7). Political patronage occurs when public officials use their discretionary authority to confer favors on followers and friends (Weyland, 1998: 109). Although these differ – while the former is always illegal, the latter may be conducted within an established legal framework – they seem to be two


sides of the same coin, and this study treats patronage as a corrupt practice. Political corruption results in either money or power (or both), and so does patronage. While patronage may not always be illegal, in the Argentine case the boundaries of the law were unclear – the close ties among the Peronists and their cronies created financial and political arrangements tha t crossed the line from “pork-barrel” politics to illicit manipulation of the system. In sum, both corruption and patronage formed citizens’ perceptions that the political class could not be trusted, a sentiment that eventually contributed to their demand for the president’s ouster.

Before turning to the relationships among populism, corruption, and trust, several points must be clarified. First, corruption did not begin during the Menem presidency – it has existed in Argentina since the colonial period. Nor is there necessarily a causal relationship between populism and corruption, since the nation has had corrupt rulers during non-populist periods, including under civilian and military leaders. Rather, I argue, it is the affinity between corruption and populism that has shaped perceptions of the Argentine government and compromised state-societal relations.

Second, the 1990s neoliberal reforms were not inherently corrupt, but they created

opportunities for extralegal practices, as the Argentine case demonstrates. They were generally carried out rapidly by a small team of economic technocrats, operating according to the strict instructions of a powerful president. And, as Whitehead (2000) notes, this type of high- level political corruption may not be simply a transitional phenomenon that disappears after the implementation of a free market regime. The key intervening variable is the rule of law – the quality and independence of the justice system – that shapes the reform process and the effective administration of a market economy. In the Argentine case, the absence of efficacious checks and balances (horizontal accountability) created conditions propitious for corruption, especially during the 1990s period of dynamic public policy shifts.

Finally, levels of corruption are difficult to measure, historically and cross-nationally.

Studies have demonstrated an upsurge in corruption in Argentina in the past two decades (Verbitsky, 1991; Manzetti, 1993 and 2000; Casella and Villaruel, 2000), but this may be due in part to increased reporting from a highly independent and vigilant press corps, international scrutiny, political competition that exposed numerous scandals, and a redefinition of the legality of certain transactions. There is also insufficient proof that Argentina has more corruption than other nations, but it indisputably tops the charts in measures of perceived corruption, as ranked by its citizens and the international community.

Corruption emerged as a global concern in the wake of the Cold War. By the mid-1990s virtually every major multilateral lending institution and development organization had jumped on the anti-corruption bandwagon, with the World Bank declaring corruption to be “the single greatest obstacle to economic and social development.1 The International Monetary Fund published eleven studies between 1996 and 2000 measuring the impact of corruption on major economic indicators (IMF, 2001). In Latin America, the Organization of American States aggressively attacked the problem, adopting a sweeping Inter-American Convention Against Corruption.

In 1993 former World Bank employee Peter Eigen founded a watchdog group, Transparency International (TI) with the aim of creating “a structure independent of the constraints of an intergovernmental framework” aimed at curbing corruption in developing and


post-Communist countries (Hodess, 2001 and Galtung and Pope, 1999: 258). Each year TI ranks countries according the degree of political corruption perceived by businesspeople, risk analysts, and the general public. Based on a varying number of surveys, countries receive a score between 0 (most corrupt) and 10 (cleanest). With the exception of the late 1980s – the end of the Alfonsín years and beginning of Menem’s first administration – Argentina scored less than five, indicating a high level of perceived political corruption in government.

Table 1

Although corruption may exist in every type of regime, it finds a friendly bedfellow in populist leadership:

[Corruption] shifts policy processes out of the public, supposedly accountable, institutions into private networks of influence. Patronage networks may bring large numbers of people into the political process, but they do so on the terms of the patron, not of the clients. Such machines control the poor and working class rather than empowering them, neutralizing their biggest asset – the strength of numbers – through the politicized use of divisible incentives (Johnston 2002: 778-779).

According to the salient characteristics of populists – that they are strong, charismatic, anti-status quo leaders with little regard for established institutions or rules – their form of governance seems highly compatible with corrupt practices. Menem’s early policies, then, fitted neatly into a populist way of doing business, as they concentrated decision-making in the hands of a powerful executive, who assured his followers to trust him, notwithstanding the path he would lead them down.

Argentina’s corrupt political environment adversely affected state-societal interactions. Citizens in a democracy construct relationships with the government on a foundation of trust (Offe, 1999). Knowing that leaders have opportunities and incentives to break laws to maintain and increase their power, and to make themselves rich, citizens generally prefer to place their faith in institutions rather than in individuals. If institutions perform well, meaning that they force their members to tell the truth, uphold contracts, and maintain neutrality and impartiality, they can become mediators and generalizers of trust.3 Populism, conversely, implies a “re-personalization” of politics. Trust in populist leaders is based upon their personal style, appearance, media skills, and charisma. Their support is derived from a loyal following that is directed toward a specific person “by a structurally often most diverse and amorphous

Year Corruption Perceptions

Index (CPI) 2 2000 3.5 1999 3.0 1998 3.0 1997 2.81 1996 3.41

1988-1992 5.91 1980-1985 4.94


constituency” (Offe,1999: 77). If Argentines trust their leaders as individuals rather than as administrators of institutions, personal failures become governability crises. In the populist regime, as the individual goes, so goes the institution. Since citizens personalized public institutions – beginning with the presidency – their image deteriorated along with the officials who ran them.

Peronism and Populism in the 1990s

Peronism has shaped and dominated Argentine political culture since the movement’s

foundation in the 1940s. In 1965, Torcuato di Tella defined populism as “a political movement which enjoys the support of the mass of the urban working class and/or the peasantry but which does not result from the autonomous organizational power of either of these two sectors” (quoted in Dix 1982: 24). Collier and Collier (1991:788) echoed this interpretation, emphasizing that populist movements include “a strong element of mobilization from above, a central role of leadership from the middle sector or elite, typically of a personalistic and/or charismatic nature…”. And it is the nature of these charismatic leaders that continues to shape their nations’ governance:

“Populist leaders tend in general to be oblivious of formal institutional rules and procedures…The fact of being ‘oblivious’ does not mean that the leader is against the formal institutions of liberal democracy… the populist leader does not really care about those rules and procedures. What the populist leader intensely cares about, however, is popular support…[and] to be loved and admired, as the leader, at all costs. The populist leader…[employs] means which may break, or not, the rule of law” (Ostiguy, 2001:17).

Thus, because of his disregard for formal rules and procedures, the populist leader and his party can adapt to changing conditions, as long as they allow him to stay in office. For its part, Peronism had to change its tradition of statist, protectionist, and redistributive policies to survive in the post-Cold War era (Levitsky and Burgess, 2001). Although it fundamentally altered its economic policies, the PJ retained many of the political characteristics of old-time populism: domination by a charismatic leader who drove the party patronage machine, wielding control over the nation to distribute funds and favors in exchange for political and personal gain.

Its leader, Carlos Menem, exhorted his constituents to follow him, initially promising to adhere to the redistributive largesse of his Peronist forebears. In his first administration (1989-1995), Menem abruptly did an about-face and instituted one of the harshest economic “shock” programs in Latin American history. After the president’s imposition of extensive neoliberal reforms, his party continued to win elections, culminating in his 1995 reelection. His victory can be attributed to voters’ sense of economic improvement – Argentina’s GDP grew 35 percent between 1991 and 1994 (Gervasoni, 1998) – but it is also a strong testament to Peronism’s resilience. In fact, since 1983 the PJ has received no less than 35 percent of the vote in any national election. One- third of the electorate has continued to support the party despite broad policy shifts and wide breaches of campaign slogans and promises.

President Menem’s early reversal of his economic strategy was but one example of his

autocratic governing style. His activities have been extensively documented,4 ranging from


dismantling and packing the Supreme Court, to rewriting the Constitution to pave the way for his reelection, to “dividing and conquering” the union movement, and to issuing over five hundred executive decrees to institute politically advantageous aspects of his reform agenda (Ferreira Rubio 2000). As the following section describes, Menem used populist means to implement his ambitious market-oriented program unilaterally, circumventing established institutions and breaking rules, and achieving his goals through top-down networks of patronage.

Convertibility and Corruption

The 1991 Convertibility Law and its accompanying policies consisted of monetary,

fiscal, public sector, social security, and trade reforms. Menem took steps that were more extensive and broader than the 1980s stabilization programs, and the plan’s results were immediate and dramatic – inflation dropped from 1,832 percent in 1990 to single digits for the rest of the decade, interest rates fell from 44 to 22 percent in the first month, consumers’ buying power increased, access to credit was revitalized, and GNP growth averaged 8 percent per annum from 1991 – 1994. By pegging the peso to the dollar and mandating that the monetary base could not exceed the dollar value of foreign reserves, the policy transformed the central bank into a currency board.5

By mid-decade some of the program’s luster had begun to fade. External shocks such as

the 1995 Mexican peso crisis, followed by the 1997 and 1998 Asian and Russian financial setbacks, adversely affected investor confidence in the Argentine economy. Even more damaging was the devaluation of the Brazilian real in 1999, because of the extensive trade relations between the two Mercosur neighbors (Pastor and Wise, 2001). And, although Menem’s early economic policies managed to weather each of these external shocks, the administration’s implementation of the Convertibility plan had already wreaked havoc on the nation’s democratic institutions. Three areas of reform, outlined here, illustrate the nature and extent of the damage to Argentina’s political and economic welfare caused by these policies: the state’s fiscal relationship with the provinces, the privatization process, and labor reform.

The first area, fiscal federalism, concentrates state resources in the central government. It

collects the majority of taxes - approximately 75 percent in the mid-1990s (World Bank, 1996) - and distributes them to the provinces in a system known as Federal Tax Coparticipation (Co-participación Federal de Impuestos, law 23.548). At the decade’s end the "coparticible" funds amounted to over US$34 billion, with approximately one-half allocated to the provinces (Barceló, 2001:46; Cicioni et al.,1996: 32-41). Coparticipation, added to other transfer mechanisms, financed approximately 65 percent of provincial expenditures in the 1990s. The coparticipation system had numerous shortcomings, including a complex and inequitable structure that lacked transparency. Since the provinces controlled spending, but not tax collection, they persisted in increasing the former while making little effort to improve on the latter. Provincial spending was exacerbated by the central government's propensity to bailout its subnational counterparts facing financial difficulties, further decreasing incentives toward fiscal responsibility (Acuña and Tommasi, 1999: 13-14). And, even with the steady flow of inputs from the capital, the provinces' freewheeling spending also forced them to seek substantial funding from abroad, adding to their debt burden (Feldstein, 2002: 12).


Although the economic reform package required deep cuts in overall state spending, it was implemented strategically and unevenly at the subnational level. Some provinces immediately felt the impact of structural adjustment while others either resisted or delayed its effects. The administration maintained the periphery’s support by postponing public sector cuts and increasing subsidies to the provincial governments (Gibson and Calvo, 1997). And, although the federal government cut its workforce by 77 percent, this reduction did not affect the provinces until much later. The PJ provincial governors backed Menem and were rewarded accordingly. Those who opposed him depended on the central government for a large amount of their provinces' income, and were reticent to complain.

The provinces' expenditures between 1991 and 1999 grew by 117 percent, to an annual total of US$35,370,000. By the time that Argentina defaulted on its fiscal responsibilities in 2001, the provincial governments had amassed a combined $23 billion debt (Krauss 2001). De la Rua, facing a Peronist majority in the governorships, inherited the tasks of reining in their debt, fighting double-digit unemployment, and cutting off the stream of funds flowing to the periphery.

While the Menem’s relationship with subnational governments demonstrates the extent of intra-party patronage, his privatization of state-owned enterprises (SOEs) became infamous for its corruption. The plan, initiated in the late 1980s, gained momentum in 1990 under then-Minister of the Economy, Erman González, a boyhood friend of the president (who was later indicted with Menem). In 1990 the government sold the state telephone company and Aerolineas Argentinas, the national airline. It subsequently sold or leased hundreds of deficit-ridden businesses and properties, including the state oil company (YPF), its electric power plants, gas and water services, subways, hotels, banks, tanker vessels, armaments manufacturing facilities, agricultural corporations, railroads, and licenses of ports, roads, and television and radio channels and the national pension system. The income figures were impressive: from 1990-1994 the revenue from privatizations totaled nearly US$10 billion in cash and even more in public bonds (Pastor and Wise, 1999 and Llanos, 1997).

The privatization program's critics claimed that the SOEs were sold too quickly and at

below-market prices, and especially targeted Menem's appointees who carried out the project. One example was SOMISA, a steel plant privatized when world steel prices were extremely low and there was a glut on the international market. Jorge Triaca, the official in charge of privatizing SOMISA, valued the plant at US$2 billion. He was subsequently indicted for defrauding the government and his successor, Maria Julia Alsogaray, attempted to sell the company for US$450 million. In October 1992, 80 percent of SOMISA was sold to its only bidder, Techint, for US$152 million (Beccaria and Quintar, 1995 and McGuire, 1997: 221). (Since the privatization process, Alsogaray has been implicated in other corrupt schemes, including her involvement in the sale of the national telephone company, EnTel, and there are legal actions pending against her at this writing.) Another infamous case was Aerolineas Argentinas' sale to the Spanish airline, Iberia. As part of the cost of its acquisition Iberia included an extra line item of $80 million, an amount allegedly paid as a bribe to the government (Manzetti 2000: 154).

Menem's inner circle that managed the privatization process made its corrupt practices

quite explicit: “[P]rospective buyers were told, through informal channels, to pay substantial


commissions to government officials in order to receive preferential treatment. In fact, the first round of privatizations, worth about $7 billion, took place not by chance without any regulatory framework” (Manzetti 2000:153). The executive administered the privatization process in a manner similar to his fiscal reforms - according to his personalistic, autocratic governing style and laden with clientelism. Two key factors further facilitated the initial stage of the privatization process: the Peronists' domination of the legislature and the economic crisis. The PJ controlled congress throughout much of the Menem presidency. Given the context of the economic emergency - and the laws that had been passed that delegated broad powers to the nation's "savior" - the legislators offered little resistance to the swift and sweeping sale of the state's properties.

After the first round of privatizations, in which a score of officials resigned in connection

with corruption scandals, the government - at the World Bank's urging - began to regulate and oversee the process. Some legislation was modified or delayed in congress, while other cases were brought before the courts. The privatization program slowed down considerably in the second Menem administration - there was also little left to sell - but by then the public was demanding an accounting of the funds and indictments for many of the program's administrators.

Privatization was closely tied to labor reform, as thousands of workers lost jobs in the

process. Menem dismantled the statist model and maintained the support of union leaders, who sided with him not only because of historically close ties to Peronism, but also due to substantial financial incentives that ensured their acquiescence. Menem also benefited from in-fighting and divisions within the largest workers' confederation, the General Workers Confederation (CGT), and also the splitting-off of the most combative sector, the Argentine Workers Confederation (CTA). The president applied labor reforms unevenly and in consideration of his political well-being and that of his cronies, including labor leaders. As a result, the reforms remained incomplete at the end of his presidency. Employers' expenses were not as reduced as the reform package had promised, with non-labor costs running as high as 50 percent of gross wages - as opposed to 30 percent for the OECD countries - and barriers to hiring and firing workers contributing to an increasing problem of under- and unemployment (Pastor and Wise 1999). The truly arduous and unpopular aspects of labor reform were left for his successor to carry out.

Rank-and-file workers felt the pain of reform much more sharply than union bosses. The

restructuring of the economy, changes in legislation, and increasing distrust in labor leadership all translated into a decline in Argentines' traditionally-strong reliance on unions in the 1990s. As increased worker "flexibility" was implemented, the fear of losing jobs in an environment of unprecedented unemployment reduced the number of those who would turn to their unions for support. By 1999, fewer than 13 percent of polled in a national survey expressed that they felt their unions in general represented workers, and 78 percent asserted that they had no relationship with their own unions. At the end of the 1990s unions ranked at or near the top of most indices of perceived institutional corruption.

During the final months of the Menem administration public opinion polls demonstrated a marked lack of trust in institutions. Given the primacy of the rule of law, it is significant that citizens especially criticized the judiciary as untrustworthy and poorly run. In a survey taken by the Buenos Aires government, nearly one-half of residents interviewed stated that there was


“almost never” or “never” justice in Argentina.6 A national poll echoed these results – 57.3 percent of respondents rating the justice system negatively, with a similar assessment for congress (51.2 percent negative) and for the presidency (50.3 percent negative). In another survey Argentines ranked institutional corruption on a scale of 1 (most corrupt) to 7 (least corrupt). Unions and the customs agency headed the list, with scores of 2.5, followed closely by the judiciary (2.6). The presidency, tax collection authority, congress, and, ironically, the Office of Public Ethics, all were given scores of 3 or less.7

Paradoxically, Argentina’s democratic evolution during the 1980s and 1990s heightened

opportunities to challenge perceptions of trust. Freedoms of the press, speech, and association all increased public expectations for transparency in their leadership, and the media played a crucial role in exposing improprieties. At the same time, voting and political competition enabled the citizenry to monitor relations with their representatives (Warren, 1999). This enhanced awareness and demand for accountability may or may not have an impact on trust, but it certainly exposes problems and, in doing so, may exacerbate citizens’ perception of corrup tion.

By the end of the Menem era, trust had become a key electoral rallying point. Fernando

De la Rua, who staked his reputation on personal honesty and integrity, made only two campaign promises: to curb unemployment and to eliminate governmental corrup tion.

The Rise of the Work, Justice, and Education Alliance (Alianza)

The alliance of parties that won the 1999 presidential election emerged from two

divergent political camps: the centrist UCR and the social democratic FREPASO. The Radicals, traditionally Argentina’s second strongest political force, historically maintained the average support of approximately 25 percent of the electorate. FREPASO mainly consisted of Peronists who left the PJ in the early 1990s in opposition to the president, in protest to the privatization program and its elimination of thousands of jobs; the authoritarian style with which the president issued decrees, appointed government officials, and unilaterally passed legislation; and the administration’s widespread corruption.8 FREPASO presented itself as a left-of-center option that appealed to urban intellectuals and middle to upper-middle class voters. Ex-PJ congressmen, including Carlos “Chacho” Alvarez, formed a “Group of Eight,” which united with other politicians, union members and human rights activists in a coalition that became part of the “Frente Grande.” In the 1993 elections they won two congressional seats.

Throughout the 1990s the coalition gained momentum. In 1994, the Frente Grande

participated in elections for the constitutional convention, winning a majority in Buenos Aires for the first time with 37.4 percent of the vote – 12 percent nationally. It earned 32 representatives to the national convention, firmly establishing itself as a viable political and moral force. And in December 1994, in anticipation of the upcoming presidential election, the Frente Grande joined with other groups to create FREPASO (Canel, 1996).

In February 1995, FREPASO nominated former Peronist José Bordón as its presidential

candidate. Bordón lost the national election, but came in second, relegating the UCR to third place. By uniting with the Radicals in 1997, FREPASO won a majority in congress and set the stage for the 1999 victory.


As the 1990s progressed, FREPASO established itself as an urban, middle-class coalition

with its base of support in the capital. Just as the UCR realized that it could not defeat the Peronists alone, FREPASO understood that it needed the Radicals’ national constituency. The only way to defeat the Peronists was to unite, so the two forces formed the Work, Justice, and Education Alliance (Alianza).

Although the Argentine economy had begun to falter by 1997, the Alianza at no time

proposed an economic program that differed significantly from the Convertibility Plan. During the 1997 legislative campaign, the Alianza reassured voters that it would maintain the fixed exchange rate policy, not reverse the privatization process, and stay the course on Menem’s market program that had kept inflation low and the currency stable.

The De la Rua Presidency

In October 1999 Argentine voters awarded the presidency to the UCR’s Fernando De la

Rua and the vice presidency to FREPASO’s Chacho Alvarez. The polling results gave them a 10-point victory over the PJ candidate, Eduardo Duhalde, (48 percent vs. 38 percent), with third place (10 percent) to Convertibility architect Domingo Cavallo. Although the Peronists maintained their historical support of one-third of the electorate, the Alianza had distinguished itself by its anti-corruption agenda. According to a survey taken on election day, honesty, ethics, and the elimination of corruption all weighed significantly in the voters’ minds, as the results in Table 2 demonstrate:

Table 2: Voters’ Preferences

Source: CEOP/ Clarín, 10/25/99: 21 Polls taken in the following months continued to reflect Argentines’ ongoing preoccupation with fighting governmental corruption. A November 1999 internet survey asked residents to rank the issues that the new government should prioritize upon assuming office. In nearly 5,000

Why did you vote for Fernando de la Rua? For the candidate: 40.2% For his honesty 59.8% For his charisma 12.8% For the platform (propuesta): 32.6% Elimination of unemployment 35.8% Elimination of corruption 26.3% For the party: 27.2% Party tradition 36.5% Candidate’s ethics and seriousness 31.8% Why did you vote for [PJ candidate] Eduardo Duhalde? For the party: 34.7% Party tradition 52.9% For the platform: 33.7% Elimination of unemployment 32.4% For the candidate: 31.7% Experience in government 32.8%


responses, 36 percent named unemployment at the top, followed by the “fight against corruption” in second place, with 30 percent. The other issues trailed behind: security (16 percent), education (13 percent), economic stability (3 percent), and health (2 percent)9 Given the nation’s rising crime rate and persistent complaints about educational and health services, Argentines’ assessment of corruption – even in this unscientific survey – illustrates its primacy in citizens’ concerns.

During his two years in the presidency (1989-2001), Fernando De la Rua struggled to

complete Menem’s market reforms while implementing policies and procedures to make the government more transparent and accountable. Upon taking office in December, the president immediately created a national Anti-Corruption Office.10 He also quickly began to tackle the toughest economic challenges, negotiating with provincial governors and the PJ, replacing ineffective officials and policies, and cooperating with international lenders and investors. In the end, nothing worked. The economy collapsed, along with the presidency.

De la Rua’s failure can be understood as the culmination of five elements, as follows:

first, he inherited an unwieldy economic recession with a tremendous foreign debt, unprecedented unemployment levels, and an overvalued, rigidly-pegged exchange rate. Second, De la Rua’s legitimacy, which rested on a foundation of anti-corruption, was compromised by scandals involving cabinet- level members of his administration. His associations undermined the president’s moral authority, but his refusal to take decisive action against those implicated proved even more damaging for his credibility. Third, the president’s indecisiveness, manifested in his frequent reshuffling of high- level officials and policy shifts and reversals, debilitated his administration. In fairness to De la Rua, while many of these changes reflected weaknesses in his leadership, they were also the result of pressures from within the Alianza, from the opposition Peronists, and from the international financial community. This leads to the fourth factor: the persistent personalization of politics. When De la Rua failed, he found no reservoir of trust to sustain him. The Alianza had disbanded, FREPASO had left the government, many in the UCR had turned against him, and the public – accustomed to closely identifying the institution of the presidency with the figure in office – rejected him. In Argentine politics, historically a zero-sum game, De la Rua had no alternative but to resign. And on December 20, 2001, he became the ninth executive in the nation’s short history to do so.11

Finally, it is simply very difficult for non-Peronists to govern in Argentina. Not only did

the PJ dominate the judiciary and the provincial governorships, as well as both houses of congress after the 2001 elections, it also maintained close ties with unions and a large core of party loyalists. Perhaps even more significant, the nature of Peronist governance had become synonymous with Argentine political culture. The state appeared unable to overcome its legacy of corruption and clientelism, which spilled over into the De la Rua government. In the end, Argentines articulated their political voice loudly: they no longer trusted their political leaders, but still preferred the populist Peronists to any other group. The concluding section addresses the elements of the De la Rua government that led to its self-destruction – and to the eventual return of the PJ to power.12


The Economic Legacy. While this study emphasizes the regime’s political aspects, it also acknowledges the magnitude of the economic crisis that De la Rua inherited. The debt figures alone are staggering, as Table 3 depicts:

Table 3: Argentina’s External Debt Profile as of April 2001

Source: JP Morgan13

Since most debts were held in dollars, the currency’s eventual devaluation meant that debtors had to pay back in pesos two or three times the loan’s original amount, which was one of the reasons that the government maintained the fixed exchange regime for too long. The pegged rate had also given Argentines easy access to dollars, facilitating huge amounts of capital flight. Since the Convertibility law precluded the central bank from printing money that was not backed by foreign reserves, the provinces (and eventually the central government) began circulating various forms of scrip to pay their expenses, including workers’ wages. Unemployment continued to hover in double-digits, much higher in the poorer provinces, and over one-third of the population had fallen below the poverty line. Finally, at the end of 2001, when the government eventually took the drastic step of freezing depositors’ accounts, Argentines took to the streets to demand a solution.

What caused the economic crash of 2001? As Pastor and Wise (2001:64) note, external

shocks were only partly responsible, because Argentina’s export sector consisted almost entirely (nine out of its top ten products) in primary commodities vulnerable to fluctuations in world prices. Additionally, as discussed previously, labor costs remained relatively high and rigid – due to Menem’s incomplete reform of the sector. The IMF also could assume its share of the blame, extending tens of billions of dollars in bailouts as the nation failed repeatedly to meet the conditions of continued financing. The IMF further encouraged the government to maintain its currency board far beyond the time when the system was viable. Thus, pre-existing external shocks, structural flaws in the economy, massive debt, poor exchange rate policies, and bad advice coupled with over- indulgence from international lending institutions all contributed to the problems inherited by the president.

Compromised by Corruption. One of De la Rua’s highest priorities upon taking office was to close the gaps left in the labor reform process. In April 2000, after much wrangling, the Peronist-dominated Senate passed such legislation, reducing employers’ costs overall and dismantling much of the labor code that dated back to the original 1950s Peron government. The

__________________________________ 1997 1998 1999 2000 2001p Total External Debt (U.S.$ billion) 125.1 140.6 146.1 147.8 157.0 Public Sector 74.8 82.4 86.0 88.5 95.6 Private Sector 50.3 58.1 60.1 59.3 61.4 Total External Debt (% GDP) 42.7 47.0 51.6 51.8 53.4 Total External Debt (% of Exports) 343.5 377.8 431.9 394.4 392.8


legislation completed aspects of the program that Menem had left unresolved, such as allowing employers to fire workers during an extended probationary period, cutting payroll taxes from 17.5 to 12 percent and weakening the unions’ power by shifting negotiations from the national to the local or company level.

But in months following, a scandal erupted in which a score of senators were accused of

bribery in connection with the legislation’s passage. Argentines perceived that President De la Rua failed to prosecute those involved, infuriating many of his supporters. For his part, Vice President Alvarez, the leading anti-corruption voice in the administration, objected to the president’s inaction and rigorously pushed for a full investigation. By October the issue came to a head, with the president announcing that two officials involved, Alberto Flamarique and Fernando de Santibañes, were to be retained in cabinet positions in his administration. The former was promoted from labor minister to chief of staff, while the latter remained head of the intelligence service. The following day Alvarez quit the vice presidency in protest. His resignation dealt a major blow to De la Rua’s legitimacy and moral authority, and proved to be a decisive step in the march toward his downfall.

De la Rua was implicated in the corruption scandal not because of his direct involvement,

but due to his failure to challenge aggressively those who directed it. Voters had elected the president because he promised to change the status quo of Argentine politics, and his administration’s illicit activities had shattered that commitment. The scandal reinforced the public’s perception that its government was rife with corruption – regardless of who was in charge.

Despite this setback, the De la Rua government did persist in indicting a steady stream of

high- level officials, culminating in the June 2001 arrest of Carlos Menem.14 The former president was charged with directing an organization that illegally sold arms to Ecuador and Croatia between 1991 and 1995, when the United Nations had imposed an embargo against such transactions. Once again, a state institution – the judiciary – would be tested in the public’s eye as to its strength and autonomy. And, once again, it would fail. The supreme court, whose membership had been increased by Menem to facilitate rulings in his favor, voted in November 2001 that there was insufficient evidence to convict him. And, once again, although De la Rua did not directly participate in overturning Menem’s conviction, he did not actively prosecute the case. When members of congress petitioned to have the Menemist judges recused from his case, the ministry of justice did not pursue the matter. According to a retired judge, justices who questioned the supreme court’s impartiality found themselves targets of investigations, so few ventured to challenge the system.15 And, after Menem’s release, the newspaper Página12 reported that the president’s inner circle, including intelligence chief Carlos Becerra, UCR head Arnoldo Kleiner, and former President Raúl Alfonsín had worked behind the scenes to secure his freedom. 16 In national surveys the judiciary remained at the top of Argentines’ lists of corrupt and poorly run institutions. President De la Rua faced a formidable barrier: weak, politicized judges who continued to back the administration that appointed them.

The “Boring” President. De la Rua’s inaction in the face of crisis remained constant

throughout his presidency. A career politician, he rose through the ranks of the Radical party, and was as quiet and prudent as his predecessor was ostentatious and extravagant – proudly


characterizing himself as “boring” during the presidential campaign. Voters, disillusioned with Menem’s flamboyance, were initially attracted to the candidate’s cautious, methodical, meticulous ways. Far from a populist, he exuded little charisma, made no bold promises or exhortations, and appeared to deflect policymaking and major decisions to those around him.

To make matters worse, his cabinet soon became a revolving door, with high- level

officials entering and leaving in rapid succession. The Alianza, as an electoral coalition rather than a political party, lacked internal discipline and cohesion. As the president’s team attempted to impose politically painful reforms, the alliance began to decompose, with the vice president’s resignation its most damaging departure. Over a dozen officials entered, left, or were shuffled among different posts. And, perhaps most significantly, there were three economics ministers in the twenty-five month administration. One of them, Ricardo López Murphy, resigned after only two weeks when six government officials quit in protest to his proposed spending cuts, including all of the FREPASO members. Finally, in March 2001, the president appointed Domingo Cavallo to be his government’s last finance “super-minister.”

Cavallo’s appointment was controversial. He had served President Menem in the same

capacity and had fathered the increasingly unpopular 1991 market reform program. He had also run for the presidency in 1999 in a partnership with the UCeDe, a right-wing party, and was perceived by the Alianza’s left- leaning members to be too orthodox in his approach. His personal dynamism also contrasted sharply to the presidency’s weakness – in fact, former President Raúl Alfonsín (himself a UCR member) – was quoted as referring to him as “President Cavallo,” much to De la Rua’s dismay. And, although Argentines initially expressed faith in Cavallo’s ability to rescue the economy, it soon became clear that he could do little to save it. And the Peronists seized every opportunity to obstruct the administration’s policies.

Peronist Power. Argentina has a highly organized society, with numerous political

parties and movements, civic associations, and interest groups. Peronism is the dominant political – and, arguably, cultural – force, as this paper has discussed. The PJ and its allies created a formidable opposition to the De la Rua regime, progressively gaining momentum during his term. Massive protests and strikes constantly hammered against the administration, many of which were orchestrated by Peronists. Demonstrators blocked major provincial highways, transportation workers shut down the subway and bus systems, and Aerolineas Argentinas employees obstructed access to the Buenos Aires airport. There were at least a half-dozen general strikes – called by the unions – that paralyzed the nation, and the opposition was relentless in its attacks. Peronist and non-PJ protestors consistently expressed two demands: an end to political corruption and resolution of the economic crisis. After Menem’s release from house arrest, calls for impeachment of the supreme court also rang out. And, in the presidency’s final months, cries for his resignation became ubiquitous.

True to their populist tradition, when called to the polls for legislative elections in

October 2001, voters once again turned to their “saviors” – the Peronists. In the Lower House (Diputados), the PJ and its allies won 66 seats (37.4%); the Alianza, 35 seats (23.1%); and other parties 26 seats (18.4%). In the Senate the Peronists won 40 seats (40%); the Alianza 25 seats (23.4%); and other parties 7 seats (15.6%).17 Their victory gave the Peronist bloc control of both houses of congress, and clearly repudiating the Alianza. In greater Buenos Aires the comparison


between 1999 and 2001 was stark: the Alianza garnered over three million votes in the former, dropping by two million to only 810,000 in the latter.18 Although the PJ had offered few viable alternatives to the nation’s economic morass – and had seen numerous officials of its ranks indicted – it maintained its rank as first choice among voters.

More surprising than the Peronists’ success in the 2001 elections was the Argentines’

distinct vote of no confidence to the entire political class. Although voting is mandatory, less than three-quarters of the eligible population went to the polls (72.9 percent). And when the results were tabulated, officials found that 12.9 percent of ballots cast were null, and 8.2 percent were blank. Of a total of 24,883,991 ballots, only 14,062,467 votes (56.5 percent) were counted.19 Many voters had intentionally nullified their ballots, and had vented their anger and frustration at politicians through messages written on them. Citizens also wrote in votes for everyone from cartoon characters to Osama bin Laden, and placed items in the urns that ranged from pizza menus to condoms to slices of lunch meat. In many provinces the null and blank votes reached unprecedented levels – such as 40 percent in Santa Fe, three times the number in the previous election. In the Buenos Aires province invalid votes took second place, succumbing only to the PJ.20 The electorate manifested its crisis of confidence in government through its absenteeism and protest votes. And. with no clear solution to the crisis or articulated plan of action, the PJ had positioned itself to re-take power once again.

After the October elections the De la Rua administration began its final descent. The IMF

had suspended any further aid, former President Menem was released from house arrest, and, as Christmas neared, impoverished Argentines began looting stores and vandalizing businesses. Cavallo resigned, and the country faced foot riots and political protests that eventually cost the lives of 27 people. Men, women, and children took out their pots and pans – a symbol of the lack of food in their kitchens – and took to the streets. President De la Rua made one last futile attempt to save his government: he appealed to the Peronists to join him in a ruling coalition. They refused, waiting in the wings for his departure. On December 20 the president submitted his resignation and hurriedly left office by helicopter.

The Senate leader, a Peronist, assumed the presidency as soon as it was vacated. After

some reshuffling within the PJ, the legislature named Eduardo Duhalde – the candidate who had lost the 1999 election – to complete De la Rua’s term until 2003. As of mid-2002, Argentina’s leader is a Peronist who not only lost the presidential election, but whose political career has been plagued with accusations of corruption. In a March 1, 2002 speech, Duhalde stated that the Argentine “people do not trust politicians or their representatives” and “do not feel represented by their union leaders or business sector and also distrust the judiciary.” Given the legacy he has inherited, due largely to his own party’s practices, Duhalde faces an arduous and dubious uphill path to restore his nation’s economy – and its trust.

Conclusion: “Del dicho al hecho, hay mucho trecho” The international development agencies, non-governmental organizations, and national

governments have pledged to combat corruption, and have dedicated significant resources to that end. Democratic forces in Argentine society have exposed scores of cases of corruption, and


citizens are increasingly demanding heightened transparency and accountability from their elected officials. However, at the same time, given the economic emergency and the widespread lack of confidence in the political class, the nation appears poised for a sweeping rejection of the politicians and policies of the past decade. Like other countries in the region, there are increasing calls for a populist, anti-status quo solution that would ultimately reverse many of the positive gains of the market-oriented program. Efforts to strengthen institutions that enforce the separation of powers – the key to preventing illicit activities – become subordinated to the search for relief from the political and economic crises. While military interventions mercifully appear to be phenomena of the past, authoritarian “saviors” with little regard for the rule of law wait in the wings. Until Argentina can overcome its legacies of personalism, patronage, and particularism, (and, perhaps, Peronism), the future of rebuilding trust remains grim.


Notes 1 http://www1.worldbank.org/publicsector/anticorrupt/index.htm

2 Source: Transparency International and Goettingen University (www.gwdg.de) 3 Framers of democratic governments have historically understood that institutions could be more reliable than individuals. According to Hardin (1999:23), “Among the core understanding of liberalism is that citizens should distrust and be wary of government. David Hume supposed we should design government institutions so they would serve our interests even if they were staffed by knaves. And James Madison and the other federalists attempted to do just that in the US Constitution.” 4 See Acuña (1995), Borón et al. (1995), Etchemendy and Palermo (1998), Gibson and Calvo (1997), Larkins (1998), Levitsky (1997), Manzetti (1993), Marcus-Delgado (1999), Murillo (1997), McGuire (1997), and Palermo and Novaro (1996). 5 Currency boards, generally created as anti-inflationary measures, are concrete example of the lack of trust in a governmental institution. They rigidly discipline the use of monetary policy to stabilize the economy by limiting the power of the Central Bank to control the money supply. After years of hyperinflation and failed reform schemes, the Argentine government effectively tied its own economic hands through such legislation. On currency boards see Enoch and Gulde (1998) and Williamson (1998). 6 La Nación, 9/29/99. 7 Fundación Poder Ciudadano, published in Ambito Financiero , 8/19/99. 8 Author’s interview with FREPASO Senator Pedro Del Piero, 3 August 1998. 9 Source: D’Alessio/Harris Argentina, from El Cronista (11/17/99). 10 Decree 102/99, 29 December 1999, promulgated as law 25.233. 11 Clarín, 12/20/2001. 12 I am grateful to Carlos Gervasoni (author’s interview, 1/7/02) for his insights into this section’s analysis. 13 See Payden and Rygel, April 2001, (http://payden.com/pubs/research/pdf/tripnotes4_01.pdf) 14 Several Menemists had already been arrested in connection with the alleged arms deal, including former ministers Oscar Camilión, Erman González, and Guido Di Tella, Menem’s former brother-in-law, Emir Yoma, and former army leader Martín Balza. 15 Author’s confidential interview, 4 January 2002. 16 Página12, 11/25/01. 17 Source: www.guiaelectoral.com.ar 18 Página12, 10/16/2001. 19 Source: www.guiaelectoral.com.ar 20 Pagina12, 10/16/2001.


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Corruption Governability and Trust: the Case Of Argentina