Argentine Crisis Won’t End Until Corruption Does

Argentina’s economy is collapsing and the U.S. needs to help save it if it has any interest in hemispheric stability. But first we need to make the right diagnosis.

At the heart of the Argentine crisis is a political system that avoids accountability, and only political reform can stop the spiraling decay.

Members of Congress are elected by party slate and owe their political future not to satisfying voters but to the head of their political faction. They keep their posts because they vote as they are told and in turn demand spoils to distribute to their own clients. Provincial governors, while directly elected, depend on the federal government for most of their revenue. They “succeed” to the extent that crises in their provinces allow them to insist on a bigger cut of central government funds, which they distribute to supporters.

Union leaders control billions of dollars in health and social service contributions and perpetuate their power through unsupervised elections, intimidation and under-the-table deals with employers.

The judiciary, fairly respected through the 1980s, has been selectively packed to avoid challenges to the corrupt status quo. Even judges who have been filmed in acts of extortion remain on the bench.

The International Monetary Fund has tacitly accepted this political morass. Many privatizations of the 1990s, central to the IMF’s program, contained sweetheart clauses that no political system with minimal accountability could permit. Domingo Cavallo, the now-infamous ex-finance minister, planned to save the country’s finances and satisfy the IMF with a “zero deficit” package. But his proposed 2002 budget venally increased the funds for the operation of Congress from $417 million to $431 million while cutting health spending from $622 million to $501 million.

Today, Argentina needs at least $20 billion in new financing to achieve stability. The common belief among its politicians is that if they present the U.S. government and the IMF with a credible economic plan, they will get it. But if the U.S. and the IMF only insist on economic reforms, they will only perpetuate the systemic corruption that keeps making their intervention necessary.

Argentina’s politicians have shielded themselves from accountability, but there are specific institutional changes that could produce it. For example, having legislators elected by individual district instead of by party slate and having them nominated through open primaries could create a body of representatives that must answer to the public. Although U.S. threats to withhold support absent political change may seem paternalistic, the purely economic adjustments typically required by the IMF for funds are equally if not more invasive.

Many countries require local governments to depend on local taxation instead of continuous negotiations over their “cut” from the central government. Requiring such a reform, to create both fiscal responsibility and truly independent local authority, is hardly more intrusive than the massive privatizations of public enterprises required by the IMF in the early 1990s.

Creation of a labor system with outside monitoring of union elections, competition between unions instead of single industrywide unions, and the separation of unions from the management of worker health programs can create a labor system in which workers’ interests are honestly represented. The new government of Eduardo Duhalde is now rolling back the few reforms achieved in recent years, but U.S. and IMF threats to withhold funding can push reforms back on track.

Only political reform can transform Argentina from a kleptocracy to a responsive democracy and end the cycle of politically created deficits. Two weeks ago, thousands banged pots in the capital to force the ouster of Carlos Grosso as chief Cabinet advisor. His remark that the country should “stop crying and dance samba” like Brazil was too galling even for Buenos Aires’ cynical citizenry.

The U.S. and the IMF can hardly put together a rescue package that disregards the clamor. Admittedly institution-building has never been part of the IMF’s mandate, but just by lending money the IMF is intervening. This time its intervention must also seek to end the corrupt status quo.