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Political Manipulations and Market Reforms Failures

Published online by Cambridge University Press:  13 June 2011

Luigi Manzetti
Luigi Manzetti
Affiliation:
Southern Methodist University
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Abstract

Economists have recently underscored that the failure of market reforms in producing sustained growth in emerging markets is the result of poor advice from the International Monetary Fund, as well as of erroneous macroeconomic policies of domestic decision makers. This article proposes a complementary hypothesis. If market reforms are enacted in a political system with weak accountability institutions, then one should expect the executive to manipulate such reforms in pursuit of such old-fashioned practices as collusion between government and business, political patronage, and corruption. This, in turn, ends up depriving a given economy of potential advantages that could have accrued had the reforms promoted true competition rather than i reallocating monopolistic rents and squandering a large amount of resources.

Type
Research Article
Information
World Politics , Volume 55 , Issue 3 , April 2003 , pp. 315 - 360
Copyright
Copyright © Trustees of Princeton University 2003

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References

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35 In many emerging markets reliable data on corruption are scarce, since the press is often intimidated and the courts are heavily dependent upon the executive. Argentina's press in this regard is an exception. Moreover, since Menem left power, many state prosecutors and judges, no longer fearing retaliation, felt free to investigate crimes committed during the 1990s. These two factors provide a wealth of data not readily available in other countries.

36 The relevance of the Argentine case was underscored by U.S. treasury undersecretary John Taylor shortly before December 2001 in these terms: “Argentina is one of the emerging markets that most clearly embarked on [the process of] globalization and implemented the reforms that the specialists saw were necessary to obtain the benefits of an insertion into the global economy. It would be tragic, not only for Argentina, but for the whole global economy, if it were concluded that Argentina's experience was useless and did not work for Argentines or the rest of the world.” See Financial Times, August 8, 2001.

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42 Daniel Kaufmann, Aart Kraay, and Pablo Zoido-Lobatón, “Governance Matters II: Updated Indicators for 2000/01,” Policy Research Working Paper, no. 2772 (Washington, D.C.: World Bank, 2002).

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75 See Clarín, August 8, 2001; La Nación, September 11, 2001. The Correo Argentino by itself owed the federal government $206 million in back fees, whereas the Aeropuertos Argentina 200 was seeking a 60 percent reduction of its annual fee worth $171 million.

76 See La Nación, September 21, 2001, and October 26, 2001. In addition to mismanaging aspects of the telephone privatization, Alsogaray could not account for assets of $2.5 million in excess of her sworn declaration; La Nación, June 6, 2002.

77 La Nación, March 21, 2002.

78 Allegedly, Menem approved the smuggling of Argentine military equipment to Ecuador and Croatia between 1991 and 1995. According to the state prosecutors, only $80 million of the $120 million netted in this illegal transaction could be accounted for, which raised suspicions that the rest went for bribes to government officials. Federal investigators found two different accounts in Switzerland linked to Menem, something that the former president had always denied. As the inquiry expanded, state prosecutors found that Menem possessed at least one million dollars in excess of his own sworn declaration while in office, and they asked him to explain how he had obtained those assets; La Nación, October 5, 2001. And he was recently accused by an Iranian defector of having received $10 million (deposited in Switzerland) from the Iranian government to cover up a 1994 terrorist attack against an Argentine Jewish association in Buenos Aires; New York Times, July 21, 2002.

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89 Clarín, April 22, 1998.

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95 Ibid.

96 Ibid. The provinces pledged to cooperate with the federal government in (1) limiting taxes on real estate and car registration; (2) limiting some municipal taxes; (3) eliminating some provincial taxes; (4) deregulating many economic activities; (5) privatizing provincially owned companies; and (6) diminishing employer's compensations from 80 percent to 30 percent.

97 The Co-Participation Law fixed the amount of federal taxes going to each province. However, based upon the interviews with senior civil servants in the Ministries of the Economy and the Interior, Menem often delayed payments to provinces controlled by opposition parties while granting to Peron-ist provinces higher shares of the tax base when new negotiations took place to reconfigure the tax-sharing mechanism. Author interviews with Argentine government officials, Buenos Aires, March 2002.

98 Author interview with former minister and presidential adviser Roberto Dromi, Buenos Aires, March 2002.

99 Data mentioned above come from the Dirrecion Nacional de la Coordination con las Provincias.

100 La Nación, May 12, 2002.

101 La Nación, November 20, 2001.

102 Grupo Sophia, “Gasto en Funcionarios Políticos, Funcionarios Temporarios y legisladores,” Documento de Trabajo (Buenos Aires, 2001).

103 A typical case was that of former Peronist deputy Miguel Nacul, who in 1995 solicited the immediate transfer to him of $550, 000 in ATNs, supposedly to attend to the needs of several towns in the province of Tucuman. Yet in a hand-written letter addressed to the Ministry of the Interior, Nacul mentions that $275, 000 was to cover his own expenditures without specifying their nature. About $300, 000 was eventually disbursed, but the problem is that ATNs could not be sent to individuals, thus prompting the charge of illegal use of federal funds. See La Nation, October 22, 2001, and May 20, 2002.

104 Clarín, August 6, 2001.

105 Ibid.

106 As one of the beneficiaries testified before a judge, “Some fellows approached me and said that I could have received a pension had my family and 1 voted for the Peronists.” See La Nación, September 3, 2001. Equally troubling were early indications that similar frauds had been perpetrated in different parts of the country.

109 Data provided by the Ministerio de Justicia y Derechos Humanos, Oficina Anticorrupción (September 2001).

110 Washington Post, February 27, 2002.

111 Grupo Sophia (fn. 102).

112 La Nación, June 10, 2001.

113 La Nación, November 4, 2001.