Tuesday, May 11, 2021

OPINION AND ANALYSIS | 30-07-2018 07:30

Argentina's systemic corruption: Understanding the causes and finding solutions

The populist presidents who governed Argentina between 1989 and 2015 were responsible for distorting the democratic system of government and creating a system called hyper-presidentialism, which caused the country’s political system to be extremely vulnerable to corruption.

“But fraud, because of man’s peculiar evil, to God is more displeasing; and beneath the fraudulent are therefore doomed to endure severer pang.”

– Dante, Divine Comedy: Inferno 11.26-28


There is a special place in hell for corrupt government officials. In Dante’s Divine Comedy, the damned souls of grafters dwell in the fifth ditch of the eighth circle of the Inferno, where they lie immersed in a river of boiling pitch for all eternity. Just as grafters concealed their shady deals from the eyes of their fellow citizens when they were alive, their souls now remain out of sight, submerged in this dark river, with the hot tar sticking to their beings just as money once stuck to their fingers.

Dante’s canto devoted to barratry reveals his concern with the collapse in governance and trust in Italian city-states. Barratry is the corruption of civic governance, the result of which is the corruption of the social order. For Dante, sins of fraud are malicious; they are premeditated and perpetrated with the intention to cause harm. Hence, fraudulent souls are condemned to reside in one of the worst parts of hell, the eighth circle (the ninth and final one is where Satan and all other betrayers are encased). They are all guilty of the ultimate fraud: fraud against those with whom there was a special bond of trust. In other words, they are doomed to reside in the lowest part of hell because they betrayed their family, country, friends, or benefactors. 

From Dante’s exposure of corruption in Italian city-states of the 13th century to the disclosure of Argentina’s systemic graft 700 years later, the subject has occupied the minds of philosophers, poets, economists, sociologists, criminologists, and political scientists.

The populist presidents who governed Argentina between 1989 and 2015 were responsible for distorting the democratic system of government and creating a system called hyper-presidentialism, which caused the country’s political system to be extremely vulnerable to corruption.

The system is influenced by the fascist corporatist ideology imbued in the Peronist party, which brought Juan Perón to power in 1946. His government was based around a strong leader who could arbitrate disputes among different corporations and who could lead the nation to a rapid economic independence with little or no interference by Congress or the courts. This emphasis on strict loyalty to the leader is relevant to understanding the phenomenon of hyper-presidentialism in Argentina today.

Concentration of power

The political system in Argentina has permitted the Executive branch to concentrate power at the expense of the other branches of government. Because the short-term returns from engaging in corruption are high and because the country's frail judicial and legislative institutions lessen the chances that such behaviour by the Executive branch will be detected, prosecuted and punished, government officials and businessmen in the private sector have been more disposed to act that way. 

As the numbers of corrupt government officials and businessmen increased, finding a partner with whom to engage in a corrupt transaction with became easier. The prevalence of corruption then further decreases the chances of detection and punishment. We’ve seen Argentina slip into a corruption trap where high levels of corruption have begot even higher levels, and there are strong incentives for companies and government officials to continue to engage in such activities. 

In 1994 Argentina’s constituent assembly passed a constitutional amendment that was intended to curtail presidential powers. But, in practice, the amendment did not prevent the president from significantly interfering with Congress and the Judiciary. Some of the constitutional reform provisions actually contributed to this interference.

One the most significant ways in which hyper-presidentialism has interfered with Argentina's Congress is through the issuance of a type of emergency decree called a DNU. The 1994 constitutional amendment prohibits the president from issuing legislative provisions – but it also grants the president the ability to circumvent this ban through the issuance of DNUs, which do not require previous approval from Congress, subject to certain constraints.

Argentina’s recent leaders have been active in their use of DNUs. Former president Carlos Menem, who served from 1989 through 1999, issued 545 DNUs, which he used to privatise the country’s airports and reform the Central Bank, among other things. Likewise, presidents Néstor Kirchner, from 2003 to 2007, and his wife and successor, Cristina Fernández de Kirchner, who served from 2007 through 2015, abused this legislative tool.

Néstor Kirchner, for instance, issued DNUs to renationalise a French-owned water and sanitation company and increase his own salary by 100 percent. In the case of Fernández de Kirchner, she issued DNUs to order the Central Bank to transfer a substantial amount of foreign exchange reserves to the federal government, in order to pay Argentina’s foreign debt. She also used one to fire the Central Bank’s president when he refused to comply with her order.

The power of the presidency has also been augmented by the president’s ability to issue a type of executive order called delegated decrees. Congress passed a law in 1996 granting Menem superpowers allowing him to reduce tax rates and eliminate certain income tax exemptions, duties that are normally performed by the Legislature under the Constitution.

In 2001, Congress delegated to the Executive (then led by Fernando de la Rúa) ample legislative powers to manage a severe economic crisis that included the superpower to modify budgetary allocations at will. And later in 2006, Néstor Kirchner obtained from Congress an act by which this superpower was institutionalised. The law authorised the cabinet chief (who is under the president’s supervision) to reallocate budgetary accounts without any limits and without any legislative oversight, as long as the total amount of reallocated budgeted expenditure did not exceed the total previously approved by Congress.

The impact of this has been substantial. During the 12-and-a-half years that the Kirchners remained in power, their six cabinet chiefs issued 643 administrative decisions that altered budgeted expenditure by 290.3 billion pesos.

In November 2016, with President Mauricio Macri’s government in power, Congress passed legislation limiting the reallocations that cabinet chiefs can make. But this law does not regulate the presidential use of DNUs to increase the total amount of expenditures above the ceiling authorised by Congress in the budget. Indeed, when considered together, the Kirchners issued DNUs during their presidencies that increased expenditure by 717.09 billion pesos beyond the amounts authorised by Congress in budgets. Bearing in mind the administrative decisions issued by their cabinet chiefs that modified the budgeted expenditures by 290.3 billion pesos, the Kirchnerite presidents were able to spend one trillion pesos without proper congressional supervision.

A weakened justice system

Hyper-presidentialism has played a fundamental role in weakening the independence of the justice system. Limits on judicial independence in Argentina have also contributed to a lopsided balance of power that favours the president and his inner circle. Given the existing concentration of power in the hands of the Executive office, it’s not surprising that Argentina suffers from problems with corruption.

Under President Macri’s administration, Congress has been able to pass three important anti-corruption laws.  The first one limits budgetary reallocations that the cabinet chief can make. The second establishes penalties for companies that engage in the corruption of public officials independently of any officers, employees or agents who participated in the bribes. The third law contemplates a reduction in prison sentences for those individuals who have engaged in public corruption, if they provide specific and verifiable information that significantly contributes to the investigation (only if the information is provided before the case is heard by the court tribunal and to the extent that it allows to bring charges to other co-participants with the same or more criminal responsibility).

In addition, President Macri has issued two executive orders establishing special procedures for greater control and transparency of judicial and extra-judicial processes against the federal state and public tenders where the parties involved have a conflict of interest with high-ranking government officials. A third presidential decree recently issued prohibits close relatives of the president, vice-president, cabinet chief, ministers and other high-ranking government officials from being appointed to any federal government office.

Yet even though these laws and executive orders are necessary in order to combat corruption, they do not address, by and large, the fundamental flaws in Argentina’s political system or the real problems that are responsible for the embedment of systemic corruption.

While in 2017 some improvement was witnessed in Argentina’s entry in the Transparency International Corruption Perceptions Index (CPI), the nation’s score of 39 ranked it 85th among 180 countries and below the global average of 43.07. This score indicates the persistence of systemic corruption.

In the area of money-laundering, a crime often associated with corruption, the Basel AML Index is a tool that measures a country’s risk of money laundering and terrorist financing on a scale from 0 to 10, with 10 indicating the highest risk. Argentina’s Basel AML Index score of 6.69 in 2017 ranked it 41st among 146 countries. Under the current scale, countries with a score between 6.6 and 10 are considered to be “high-risk” countries. So, by this measure, Argentina is still a high-risk country for money-laundering.

Escaping the trap of corruption is extremely difficult. High levels tend to be very persistent over time. It is unusual to observe highly corrupt nations become countries with low levels of graft. Often such a result requires an institutional shock and a combination of policies not only directed at dramatically increasing the cost of corruption but also focused on the re-education of an entire society. Economists call these extraordinary measures a big push.

In order to achieve real success in reducing corruption, Argentina needs to focus on weakening the hyper-presidentialist model of government that has been predominantly responsible for systemic corruption. Measures such as banning presidential and parliamentarian re-elections, prohibiting the reappointment of ministers and other top government officials to future governments, and barring the president and his top officials from being elected or appointed to parliamentary, judicial, or other government positions that grant immunity, should all be seriously considered in a constitutional amendment.

Likewise, the Constitution should be amended to severely restrict the use of DNUs and to require them to be approved by both chambers of Congress, in extraordinary sessions if needed, within a short period of time from their issuance. Furthermore, to address the ability of the president and cabinet chief to reallocate budgetary accounts without any legislative oversight, a constitutional amendment should prohibit Congress from delegating this authority. In this way, the Executive will be prevented from overspending on projects where there is a suspicion that corruption is taking place.

Serious consideration should be given to reforming the Constitution so as to allow Congress to appoint, with the agreement of the Supreme Court, an ad hoc tribunal of foreign judges that will try corruption cases involving top government officials accused of corruption. This will reduce the likelihood that indicted government officials will bribe the judges responsible for trying them and could speed up the resolution of corruption cases.

In order to avoid vacancies in lower federal courts that could delay the processing of corruption cases, another constitutional amendment should require the president to appoint a federal judge within a short period of time from the date that the binding proposal of three candidates is approved by the Council of Magistrates. The appointment would still need the Senate’s consent. Further, the council’s size should be increased and its composition changed, so as not to allow the ruling party to secure more than one-third representation in the council; a situation that could impede the selection and impeachment of judges, should it happen.

Provincial constitutions should also be reformed in line with the constitutional amendments at the federal level.  

In addition to an institutional shock, a big push requires the simultaneous implementation of a number of anti-corruption policies that will not only act on individuals’ monetary incentives but also on people’s intrinsic motivations.

Economists believe that individuals act corruptly when the rewards for doing so are larger than the respective costs. Thus, as the first step in combating corruption, Congress must significantly increase the penalties imposed in corruption cases, making these crimes punishable with lengthy mandatory jail time – with no exceptions for old age – that is not subject to probation, parole, suspension, or presidential pardons. Additionally, Congress should significantly extend the statute of limitations to initiate enforcement actions against persons charged with corruption.

Likewise, Congress should pass an asset recovery law that allows the government to sue individuals and companies in a civil court, in order to recover assets that come from corruption activities. The government should also implement policies that increase the probability of detecting corruption. One such policy is having monitors elected by voters rather than appointed by the president to oversee government officials in charge of handling public funds.

Another policy Argentina needs is a whistleblower programme through which those who come forward are guaranteed monetary rewards, confidentiality, and protection against retaliation for reporting corruption to an independent anti-corruption state agency. However, the reward should be granted only if the reported party is convicted, and/or his assets from criminal activity are forfeited, and the whistleblower himself is not criminally convicted.

Finally, policies that call for public awareness campaigns and education programmes, aimed at increasing people’s mindfulness of the illegality and immorality of graft and the costs of it to society, are an important tool in the fight against corruption. 

It is not enough that there is a special place in hell for corrupt government officials. Argentina must dramatically change its institutions and secure severe punishments on earth for those who breach the public’s trust, if public corruption is to be rooted out once and for all.


* Eduardo Singerman is the former litigation director of the Global Forensics practice at BDO USA, LLP in the firm’s New York office. All opinions are the author’s own as a long-time researcher of Argentina, he does not speak on behalf of his employers, past or present.

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Eduardo Singerman

Eduardo Singerman

Eduardo Singerman is the former litigation director in the Global Forensics practice at BDO USA, LLP in the firm’s New York office. All opinions are the author’s own as a long-time researcher of Argentina, he does not speak on behalf of his employers, past or present.


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