NCPA - National Center for Policy Analysis

Argentina Dragged Down by Corruption, Statism

January 15, 2002

While some blame Argentina's current economic woes on the country's embracing the free market, experts say the problems begin with its dilapidated political and legal institutions.

  • Transparency International's annual index of corruption levels ranked Argentina 57th out of 91 countries in 2001 -- worse than Bulgaria, Botswana, Namibia and Colombia, and on par with notoriously corrupt China.
  • The 2001 Global Competitiveness Report on 59 countries by Harvard University and the World Economic Forum ranked Argentina 40th for the frequency of irregular payments to government officials.
  • The same report listed the country 54th in the independence of the judiciary, 55th in litigation costs, 45th for corruption of the legal system and 54th in the reliability of police protection.

Experts point out it wasn't always this way. But since the two presidencies of Juan Peron, the first beginning in 1946, statism has become such a fact of life that even the economic reforms and privatization attempts of the 1990s haven't dented it.

  • Government spending as a percentage of gross domestic product (GDP) climbed to 21 percent in 2001 -- up from just 9.4 percent in 1989.
  • In just one province, 90,000 of the work force of 400,000 are municipal, provincial or federal employees.
  • In another province half the work force is on the government payroll, and many only show up once a month -- to collect their paychecks.

As the public sector ballooned, the legal system collapsed. Without a reliable legal system, investors are scared away, and risks caused by delays and uncertainty drive up interest rates. In one province it takes an average of five years to foreclose on a commercial mortgage.

The answer to Argentina's problems lies in both the removal of statist controls and the creation of sound institutions, experts say.

Source: Brink Lindsey (Cato Institute), "How Argentina Got Into This Mess," Wall Street Journal, January 9, 2002.


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