GIS Dossier: Corruption and political transformation
- Powerful global trends helped create a popular revolt in Latin America against corruption
- Gigantic kickback scandals in Brazil have radiated throughout the region
- Pressure for good governance is welcome, but backlash has unpredictable effects
GIS Dossiers aim to give our subscribers a quick overview of key topics, regions or conflicts based on a selection of our experts’ reports since 2011. This three-part survey explores how the fight against corruption, a perennial feature of most political systems, has become a rallying cry for change in some parts of the world. Part One examines Latin America, Part Two will consider Russia. Part three covers China, Ukraine and selected countries Central Asia and Africa.
Corruption occurs in all political systems, as seeking to divert public funds for private purposes – either through cronyism or outright bribe-taking – is a universal temptation of officeholders. In authoritarian or traditional systems run by narrow oligarchies, however, it is not a glitch but an endemic feature of the system. GIS expert Teresa Nogueira Pinto explored the reasons why this should be so in an extensive review of corruption in Africa published in March 2019.
Consolidated democracies have lower corruption levels, while dominant party and authoritarian dictatorships tend to be more corrupt. The explanation is simple: remaining in power indefinitely is an expensive business, especially in a time when the political costs of open state violence increase. It takes money to use more subtle strategies. In countries where elections are not free and where there is no clear distinction between private and public, the best way to remain in power is by sustaining power structures, especially the military and security services.
For rulers in such countries, rewarding political loyalty or cementing clan ties take precedence over economic growth or the rule of law.
However, as pointed out by Ms. Pinto and GIS expert Dr. Joseph S. Tulchin in an April 2018 roundup of Latin America, this way of doing business is being challenged in many parts of the world. Several global trends have fueled this phenomenon.
Market-driven globalization has created opportunities for corruption but also raised the penalties for inefficiency
Firstly and perhaps most importantly, the power of markets driven by globalization, even as it has created lucrative new opportunities for corruption, has also raised the penalties for economic inefficiency and increased monitoring by international financial institutions and foreign donors. Secondly, the information revolution has raised the visibility and public awareness of abuses, while offering ordinary people new ways to organize. Thirdly, political and institutional reforms (notably the separation of powers and buttressing of judicial systems) launched in many countries in the 1990s and 2000s helped make popular anger at corruption a force to be reckoned with in places like Latin America, Africa and Eastern Europe.
Under the most hopeful interpretation, the combined pressure from popular movements, foreign investors and multilateral organizations could encourage a “new paradigm” of public probity, as Ms. Pinto noted. However, even more likely is that authoritarian rulers will adapt to the new conditions, much as they did to outside pressure for competitive elections in the 1990s, with cosmetic changes that disguise but do not change the basic features of cronyism and privileged access.
This three-part dossier looks at some instances where the political impact of corruption could have geopolitical implications. In recent years, the most striking positive example (though there are plenty of adverse effects as well) is Latin America, which will be discussed this week. The next installments will look at Russia and China, where popular anger at corruption has been channeled to strengthen authoritarian systems, and at regions like Eastern Europe (especially Ukraine) and North Africa, which give equal grounds for optimism and pessimism in the long term.
Brazil is the most spectacular example of a corruption-induced crisis that, in the words of a special GIS Dossier on the topic in August 2017, “brought Latin America’s biggest country to its knees and a significant part of its political and business elites to criminal courts.”
The basic ingredients were a bloated public sector and a long history of corruption dating back to the military regimes of the 1960s. Add to that recipe a leftist party that denounced abuses of power for profit but was only too eager to cash in, and a global economic crisis that suddenly exposed the shortcomings of Brazil’s export-led growth model, and the conditions for a meltdown were there.
President Luiz Inacio Lula da Silva (2003-2010), universally known as Lula, and his Workers’ Party (PT) were elected to take on vested interests and provide “by-the-book, ethical governance.” Once in office, however, they proved remarkably “complacent” on rooting out corruption, as GIS expert Carlos da Silva pointed out in a January 2011 report.
Just how much so became apparent in 2014, when the Public Prosecutor’s Office and the Federal Police launched the “Operation Car Wash” investigation of public contracts at oil giant Petrobras and some of Brazil’s largest construction firms, especially Odebrecht, whose chief executive appears to have been involved in many of the Petrobras payoffs. By mid-2015, the Petrobras portion of the investigation alone had resulted in the arrest and indictment of about 120 individuals, including some of the wealthiest business people in the country, as well as key political leaders, Dr. da Silva noted in an October 2015 report.
In a way, the anti-corruption probe showed that President da Silva and his designated successor Dilma Rousseff (2011-2016) had kept their promises. Lula, perhaps put off-guard by his genuine popularity and Brazil’s booming economy, found it politically expedient to burnish his image by passing anti-corruption legislation during his term. The result, as Dr. da Silva noted, was to buttress “the democratic institutions Brazil had built since the end of its military regime” in the 1980s.
The exposure of billions of dollars in kickbacks destroyed the careers of three Brazilian presidents
Public prosecutors, the federal police, the courts, civil society (especially nongovernmental organizations) and the independent news media remained effective and independent, and thus capable of monitoring the government. The Brazilian military’s decision to stay on the sidelines (unlike in Venezuela or the Northern Triangle in Central America) was also decisive and helped set a pattern.
Yet the cost was also severe. The exposure of $1 billion of kickbacks paid to state officials for lucrative construction deals, along with the government’s practice of improperly dipping into the assets of state banks to cover budget shortfalls, destroyed the careers of three Brazilian presidents. Ms. Rousseff was successfully impeached in 2016, her successor Michel Temer (2017-2018) was reduced to lame-duck status and nearly removed; and Lula went to prison on corruption charges, preventing him from running again in 2018. Nearly all the country’s mainstream political parties have been discredited, while political turmoil derailed economic reforms needed to revive Brazil’s flatlining economy, as Dr. da Silva observed in August 2017.
What was not immediately appreciated was the international scale of Brazil’s corruption scandals. This especially applied to the giant contractor Odebrecht, which used the kickback methods it perfected at home to snag contracts all over Latin America. As prosecutors brought more abuses to light, Dr. Tulchin wrote in a March 2017 report, the political fallout spread “across South America like a vast pandemic,” engulfing successive governments – including Chile, Colombia, Ecuador, Mexico, Peru and Venezuela, to name a few. In all, perhaps $800 million in bribes were doled out to arrange 100 deals in 12 countries, the GIS expert noted in January 2018; in Peru, for example, three former presidents were involved.
However, as Dr. Tulchin argued in a May 2017 opinion piece, this unprecedented “proliferation of public scandals can be taken as good rather than bad news.” Even as the public outcry increases in Latin America, there is no evidence that actual corruption is on the rise. Instead, what appears to be going on – partly because of the demands of global economic competition – is that local institutions have started to function as they should, “vigorously defending the rule of law and its constitutional boundaries.” The process has been accelerated due to the faster dissemination of information allowed by social media, and because the commodities-driven export boom of the early 2000s “produced a huge expansion of the middle class in almost every country in the region.”
These newly prosperous citizens are very active participants in the political process. This middle class has soured on the leaders of several Latin American countries, especially as they feel the pinch of an economic downtown caused by collapsing commodity prices. The losers in the globalization game, now politically active and sensitive to what they consider the unfairness of the system, view corruption as a threat to their personal well-being and are clamoring for the miscreants to be prosecuted.
When the boom came to grief in the early 2010s – not so much due of the global financial crisis as because of a slowdown in the Chinese economy – it was a devastating setback for resource-dependent economies all over the world. Faced with a loss of revenue, and forced to cut back on food and fuel subsidies to the population, authoritarian regimes in Sudan, Algeria and Venezuela were challenged by grassroots protest movements. In most of Latin America, however, where more-or-less-functional democracies allow competitive elections, the backlash came at the polls.
By 2016-2017, most opinion polls of Latin American citizens showed corruption was their second-biggest worry, right behind personal safety. This region-wide concern has led to victories of new center-right governments in Argentina, Colombia and Peru. It was also behind the election of a brash former army captain, Jair Bolsonaro, as Brazil’s new president in October 2018, and helped drive the leftist National Regeneration Movement (MORENA) of Andres Manuel Lopez Obrador, to an overwhelming win in Mexico’s July 2018 elections.
At times, this voter revolt can lead to protracted political convulsions. In Peru, the 2016 election of an unlikely presidential candidate – former World Bank economist and New York-based investment banker Pedro Pablo Kuczynski – was mainly attributable to public revulsion at corruption in the camp of front-runner Keiko Fujimori, whose father, former President Alberto Fujimori, was in prison serving time for corruption and human rights abuses. Mr. Kuczynski himself narrowly dodged impeachment in the Odebrecht scandal by pardoning the elder Mr. Fujimori. He then was forced to resign in March 2018 on allegations of vote-buying. As GIS expert Carlos Basombrio pointed out in a July 2016 report, even experienced reformers can quickly come to grief in Peru’s deeply dysfunctional political system, with weakly institutionalized caudillista parties, scant financial supervision, and universal public distaste for politicians.
Because they are mostly urban, anti-corruption movements can also bypass large swathes of the population
Argentine President Mauricio Macri’s victory over the Peronist government of Cristina Fernandez de Kirchner was also due to ordinary people getting fed up with Ms. Kirchner’s populist brand of crony capitalism, which remains the economy’s biggest structural problem, as Dr. Tulchin explained in an August 2016 report. However, the Macri government’s cautious reforms to clean up public finances and restore Argentina’s credit could also be its undoing – as efforts to rein in runaway social spending and a faltering peso mean short-term pain for the working population.
Anti-corruption movements can also bypass large swathes of the population. They are typically urban, while rural dwellers are more entangled in traditional patron-client relationships. This can be seen in countries like Colombia. As Dr. Tulchin outlined in a March 2018 report, that country’s big cities – Bogota, Cali and Medellin – “have become something akin to islands of good governance,” making “dramatic progress in public transportation, regulatory frameworks for development, and social programs to deal with the less privileged segments of the population.” Rural areas, on the other hand, are still usually controlled by barons of the landholding class, who handpick local representatives to the national legislature, sometimes in conjunction with organized crime and drug traffickers.
Latin America’s fight against corruption and the resulting political changes cannot be understood outside the international context. The region’s increasing integration in the world economy exposed governments to greater competitive and financial stresses, even as it generated income streams that could be diverted for private purposes. More important, As Dr. Tulchin observed in March 2017, it enlisted countries in a global modernization push sponsored by multilateral donors and creditors, including the World Trade Organization (WTO), the Organisation for Economic Co-operation and Development (OECD), and the G20, along with watchdog groups like Transparency International.
It was an extension of the broader U.S. and Western effort to impose a rules-based democratic order after 1989, which included an important anti-corruption plank. Even the International Monetary Fund, “which for decades had been reluctant to make corruption an issue in their lending on grounds it was a matter of internal politics, began in the 1990s to push for greater transparency,” Dr. Tulchin wrote. For the same reason, the OECD blocked Brazil’s efforts to join due to the lack of oversight and accountability in public finances.
In some of the worst afflicted countries, the best resort may be outside pressure and assistance. This has played a vital role in the “Northern Triangle” countries of Central America, where violent crime, drug trafficking and corruption have spurred a strong out-migration to the United States. In El Salvador, aid money has gone to bolster the local police and civil society organizations, but even more, powerful leverage is exercised by the Salvadoran diaspora in the U.S., whose remittances account for 17 percent of the country’s GDP, as Dr. Tulchin outlined in a February 2016 report.
In Guatemala, where the drug trade has virtually captured the upper levels of the government and military, a key role is played by the United Nations anti-corruption commission, known by its Spanish acronym, CICIG. This body, primarily funded by a U.S. grant, has brought indictments against Guatemalan President James Ernesto Morales and his immediate family. In retaliation, the president declared the head of the CICIG, the Colombian lawyer Ivan Velasquez, persona non grata.
Throwing the old thieves out of office to install new and greedier ones is a familiar story
While the success of these interventions is partial, they have at least undermined the “culture of impunity” that characterizes countries in which grand-scale corruption is the normal way of doing business. As Dr. Tulchin noted in a February 2015 report citing the views of U.S. jurist Mark Wolf, who has proposed setting up an International Anti-Corruption Court, “sunshine is the best disinfectant in countries with a free press, effective law enforcement, and an honest judiciary.”
The right medicine?
Of course, the promise to fight corruption can itself be a mask for more corruption. Throwing the old thieves out of office to install new and greedier ones is a familiar story. As Dr. Tulchin wrote in an April 2018 overview of corruption in Latin America, a “furious wave of anti-corruption sentiment” helped Lula and the Brazilian left ride to power in 2003.
That did not keep them from looting an estimated $5 billion from Petrobras, hampering the oil giant’s investments and business development. Even worse, the ruling PT’s practice of ransacking state-owned companies and collecting kickbacks on public contracts was followed by opposition politicians, who retained significant power in the National Congress and state governments. This ensured that the scandals, when they broke, produced a nearly complete political collapse that engulfed Brazil’s large, established parties.
In such conditions, the way is cleared for “extremist candidates claiming to be ‘outsiders’ who will put an end to corruption,” Dr. Tulchin observed. This helps explain the sudden rise of far-right Congressman Jair Bolsonaro to win the Brazilian presidency, responding to the public’s yearning for a “Trump-like outsider who could inject new blood” into the discredited political system.
Mr. Bolsonaro’s tough talk about restoring law and order also strikes a chord in a country where 60,000 people are murdered every year and only one in 10 homicide cases is ever solved, GIS founder Prince Michael of Liechtenstein noted in an October 2018 comment. In this sense, his appeal resembles President Rodrigo Duterte’s brutal war on crime in the Philippines, or the swing by European voters toward parties that promise to improve security by removing restraints on the police.
In Mexico, voters swept away the center-right government of Enrique Pena Nieto, which had launched a series of promising reforms in energy, telecommunications and education but was overwhelmed by high-profile corruption scandals and gang violence. The new president, Andres Manuel Lopez Obrador, won a landslide victory on a social justice, anti-corruption platform, forming the first left-wing government in Mexico’s history. As GIS expert Andrew Selee wrote in an August 2018 report, Mr. Lopez Obrador is an experienced and pragmatic politician, but sends out contradictory signals about whether he is “an unpredictable populist who wants to centralize power around his persona, or a committed democrat who wants to build institutions.”
The perils of a populist backlash are nowhere more visible than in Venezuela, where President Hugo Chavez (1999-2013) rode to power on an economic and social crisis sparked by declining oil prices and rampant corruption. His brand of deficit-spending redistribution, which he called “socialism in the 21st century,” bankrupted a country with the world’s largest oil reserves and created Latin America’s most corrupt state (168th of 180 countries ranked by Transparency International).
After running Venezuela’s state oil company into the ground, the regime (now led by President Nicolas Maduro after Mr. Chavez’s death from cancer in 2013) has stayed in power by keeping its soldiers loyal – first by giving senior commanders a cut in proceeds from drug smuggling, and later by handing distribution of food and medicine, including aid supplies, over to the military.
Now, with Mr. Maduro and the military challenged by a popular uprising led by self-proclaimed “Interim President” Juan Guaido, the country’s alternatives appear to be an internationally brokered regime change or civil war. Outside mediation has been complicated by great power rivalries, with China and Russia lining up behind the regime, while the United States even hinted at military intervention in support of the opposition (a plan later denied by the Pentagon).