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OP-ED | 18-08-2018 08:42

Editorial: Korruption fallout

The most immediate problem is how to finance public works because funding the deficit with debt becomes a far less attractive option with country risk reaching 700 points at times while the shadow of graft makes investment banks and the rest of the private sector shy away.

As the graft scandal from a chauffeur’s copybooks continues to spiral with new confessions from some businessman every day and no end in sight, we could do worse than look at Brazil, which already has more than four years of fallout from its Lava Jato money-laundering investigations under its belt. Not that this gives any final answers because Brazil is far from end of story – on the contrary, ex-president Lula has just thrown the October election up in the air by launching his candidacy despite his prison sentence – but by the end of the year we should have a clearer idea where Brazil is heading. Yet what Brazil can already show us is literally hundreds of companies calling in the receivers (although where this is a direct result of the scandal and where the consequence of three years of recession is harder to say) and this should tell us that the idea of limiting the damage to President Mauricio Macri’s cherished public works by punishing businessmen rather than businesses is easier said than done (especially since acquiescence in graft was so often a corporate decision to stay in the game rather than the aberration of an individual executive).

According to a pet cliché of the pundits, every crisis is also an opportunity and that certainly applies to the current drama but the problem remains that there is so much crisis that the opportunity could be lost. To root out corruption no matter what the consequences is not only an ethical imperative but also carries its economic benefits – a structural revolution and a transformation of the business class so that public works budgets serve to update infrastructure rather than as political slush funds. Yet that is the long term – this opportunity for structural reform comes on top of an acute financial crisis with continuing devaluation amid international turbulence while the economy has fallen into a slump with jobs at risk (not least in public works) with elections little more than a year away.

The most immediate problem is how to finance public works because funding the deficit with debt becomes a far less attractive option with country risk reaching 700 points at times while the shadow of graft makes investment banks and the rest of the private sector shy away. A context which would seem to make the alternative of public-private partnership a non-starter because many (perhaps even most) of the companies who have expressed an interest in PPPs appear in the copybooks and have already been raided by police. Meanwhile on the public side the international Monetary Fund (IMF) monitoring team in town under Roberto Cardarelli has already detected several shortfalls in Argentine compliance with the June agreement.

Yet unless one accepts the curious logic of some Kirchnerites that all the guilt here falls on the businessmen paying the bribes with those receiving the money entirely innocent, the institutional implications of this scandal extend far beyond the business sector. The main watchdogs of impunity throughout are to be found in the political class and the judiciary with the latest example being last Wednesday’s Senate denial of quorum for Federal Judge Claudio Bonadio’s search warrant against Senator Cristina Fernández de Kirchner – during the long years of Kirchnerite presidencies many (perhaps even most) of Bonadio’s colleagues slept on the cases now coming to light. In nearly three years Macri has done little enough to honour his campaign pledge to upgrade the institutions but this scandal should serve as a wake-up call to begin in earnest.

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