international analysis and commentary

The corruption curse across Latin America


Few people would have imagined even four or five years ago that dozens of political leaders from across Latin America would be languishing in jail today, or would be fighting charges of having plundered state coffers for personal gain, while their countries, briefly hailed as a beacon of economic stability in the midst of an unrelenting global crisis, spiralled into deep recession and even political violence.

And yet this is exactly what has happened, shining a light on our general inability to accurately assess the quality of a country’s underlying governance through boom and bust cycles.

In a 2010 op-ed,¬†Forbes‚Äô Argentinian-born contributor Agustino Fontevecchia urged investors to ‚ÄėForget China, Look To Latin America,‚Äô where ‚Äúaccelerating capital inflows, stronger domestic demand and minor risk of inflation‚ÄĚ mixed with the ability of global commodity powerhouses like Brazil‚Äôs state-owned oil firm, Petrobras, to chase ‚Äúdemand worldwide‚ÄĚ heralded an era of ever-increasing returns.

As developed economies in Europe and North America struggled to recover from the global financial crisis, the Latin American ‚Äėtigers‚Äô proved far more resilient, largely thanks to the ‚Äúresponsible and sustainable policy management‚ÄĚ they ¬†developed in the aftermath of the devastating debt crisis suffered in the 1980s, argued the Organisation for Economic Co-operation and Development (OECD) in a 2010 report.

On the heel of robust growth throughout the early 2000s, in 2010 Argentina’s economy expanded more than 10%, Brazil’s more than 7.5%, Peru’s nearly 8.5% and Paraguay’s a whopping 13%, according to International Monetary Fund data.

Fast-forward to 2017 and news from the region suddenly looks and feels very different. ‚ÄúNearly every nation in South America has been jolted by large protests or violent clashes in recent weeks, a continental surge of anti-government anger unlike anything in years,‚ÄĚ the¬†Washington Post¬†reported last April.

Heavily dependent on exports of oil, copper, iron ore, soy and other raw materials, especially to China, countries across the region suffered tremendously from falling oil prices and China’s economic slowdown in the first half of this decade.

As money dried out in less favorable macro-economic conditions, profound institutional fissures were laid bare. The widespread belief that government leaders across the continent had embraced more sensible, transparent policy-making crumbled under the weight of political corruption, the depth of which we are only now beginning to grasp.

Nowhere is this astonishing turn of events more evident than in Brazil, which is now suffering one of its worst recessions ever.

A three-year old investigation dubbed ‚ÄúOperation Car Wash‚ÄĚ has unveiled a massive decade-long scheme whereby Petrobras (the energy giant) regularly awarded public works contracts to engineering firm, Odebrecht, and its affiliates in exchange for hefty bribes that ostensibly benefited hundreds of politicians and corporate executives of all stripes in Brazil and around the world.

The probe has thus far led to the conviction of more than 90 Brazilian nationals, the impeachment of former president Dilma Rousseff of the leftist Workers Party and ongoing cases against Rousseff’s predecessor Luiz Inacio Lula da Silva, as well as dozens of sitting lawmakers and several ministers in the conservative government of President Michel Temer, according to Reuters. And Temer himself is now facing possible corruption charges.

Odebrecht‚Äôs behavior was nothing short of brazen. Through the Division of Structured Operation, which according to U.S. prosecutors effectively functioned as a dedicated ‚Äúdepartment of bribes,‚ÄĚ the firm paid out nearly $1 billion in kickbacks to officials in 11 countries, including Argentina, Colombia, the Dominican Republic, Ecuador, Guatemala, Mexico, Panama, Peru and Venezuela.

The current head of Argentina’s federal intelligence, Gustavo Arribas, is suspected of being among several government representatives who received some $35 million in illicit payments from Odebrecht between 2007 and 2014.

Separately, former Argentinian president Cristina Fernandez de Kirchner was recently charged, along with several associates and former aides, with laundering at least $1 billion in misappropriated government funds, and was also ordered to stand trial for rigging the dollar futures market at a cost of $3.5 billion to Argentina’s central bank in order to artificially prop up the peso ahead of the November 2015 presidential elections.

Former Peruvian president Alejandro Toledo, who ruled the country from 2001 to 2006, was indicted in 2013 for laundering $20 million in bribes, some of it pocketed from Odebrecht. Toledo fled Peru earlier this year and is now the target of an international arrest warrant.

Colombian president Juan Manuel Santos recently admitted publicly that his 2010 and 2014 presidential campaigns received prohibited donations from Odebrecht, though he claimed not to have been aware of the wrongdoing. Similar allegations have been waged against Oscar Ivan Zuluaga, Santos’ conservative opponent in the 2014 election.

Venezuela‚Äôs recent descent into economic and political chaos has been widely written about. There too sitting President Nicolas Maduro has been accused of funneling, when he was the country‚Äôs foreign minister, $11 million in illegal cash payments from Odebrecht to his predecessor Hugo Chavez‚Äôs 2012 re-election campaign. Separately, Venezuela‚Äôs current vice president Tareck El Aissami became the target in February of U.S. sanctions “for playing a significant role in international narcotics trafficking.‚ÄĚ

Sprawling corruption investigations have also engulfed the highest echelons of the government and business elites in Central American countries with a certain reputation for political mismanagement.

Antonio Saca, who was the president of El Salvador from 2004 to 2009, was arrested last fall for conspiring with several associates to siphon off some $240 million in public funds; Otto Perez Molina, who ruled Guatemala until 2015, was also arrested in 2016 along with his vice-president Roxana Baldetti for embezzling tens of millions of dollars by orchestrating separate customs and social security frauds.

In the midst of such turmoil, some Latin American countries, Chile and Uruguay above all, have managed to steer clear of troubles, at least so far, while others, like Peru, Colombia and Bolivia, are handling their corruption scandals while still growing their economies.

In all other cases it appears that politicians and government officials – widely thought to have been working hard during the last fifteen years to set their countries on a more prosperous and sustainable economic course – were instead chiefly preoccupied with lining their own pockets.

If there’s one lesson to be learned from the region’s dramatic reversal of fortune is that we would be wiser not to be blinded by a country’s performance at a time of plenty but rather judge its economic, political and institutional health in times of scarcity.