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Latin America’s New Year Resolution – Fight Corruption

Geoffrey McRae on 03/01/2018 - 11:58 in Uncategorized

What happened?

It seems that centuries of corruption in Latin America are finally catching up in meaningful way with its worst offenders. Brazil’s Lava Jato (Car Wash) mega corruption enquiry is the epicentre of an earthquake that is shaking the region to its core, with some of the region’s most powerful political and business voices charged or already locked up. In Brazil, Eike Batista, formerly the country’s richest man, Aldemir Bendine, an ex CEO of Petrobras and Lula, the once-adored president who may be barred from running in next year’s elections.

But the tremors are not isolated to Brazil. Peru’s last three presidents are under investigation, as are political leaders in Colombia, Mexico and Argentina, while Guatemala’s president and vice-president were ousted in 2015 on corruption charges. No country has been left untouched.

The anti-corruption movement is driven by citizen demand. Protests have erupted across the region, most notably in Guatemala, where current President Jimmy Morales’ attempted to remove the head of a United Nations-backed anti-corruption commission that was investigating him. Corruption is now a defining feature in the avalanche of elections scheduled in the next 12 months, where Andrés Manuel López Obrador in Mexico, Caludia Lopez in Colombia, Jair Bolonaro in Brazil are all campaigning on an anti-corruption platform.

Why is Latin America corrupt?

Corruption in Latin America can be traced back to the legacy of Spanish and Portuguese rule. Power was concentrated in the hands of landowners and business leaders and passed down through generations. The exclusion of large proportions of societies fostered the formation and longevity of extractive political institutions, in which small groups of people colluded to keep power and reap its rewards. Corruption was fundamental to the workings of these machines; bribery and nepotism became commonplace.

Weak rule of law and searing inequality made bribery so effective and so ignored…

But even as democracies, which in theory hold the elite accountable to their actions, appeared across the region, corruption has continued to thrive in Latin America. Weak rule of law and searing inequality made bribery so effective and so ignored. On a more mechanical level, political systems have also engendered corruption. Brazil is in a class of its own in this respect – over thirty political parties jostle for political influence in governing coalitions, which sometimes involve as many as ten individual parties.  The inevitable result is vote buying, as in the 2005 mensalao (big monthly) scandal, where convictions reached the very top of the ruling PT (Workers Party). In Mexico, high levels of political power rest with local governors, encouraging the formation of isolated pockets of corruption that are hard to quash from Mexico City.

What does Latin American corruption look like?

Corruption runs deep through Latin America society, and has many faces, from low-level bribery used to grease the cogs of public services, to illicit payments to secure billion-dollar construction contracts, which are often followed by hush money. The case of Odebrecht – the Brazilian construction colossus – epitomises one of its most damaging forms. The group systematically paid bribes to secure huge construction contracts across the region. Amongst countless projects, it built the Caracas Metro and much of the infrastructure of the Brazil 2014 World Cup. It was also one of the biggest political donors in Brazil.

Recent analysis from the LSE shows amount paid by Odebrecht to national governments, as documented by Brazilian, US and Swiss prosecutors and published by the US Department of Justice. It reveals the ubiquity of its bribes, but more interestingly, it reveals their comparative cost. By dividing the value of the contract by the amount of the bribe, you can give each country a corruption score, showing how ‘cheap’ each country was for Odebrecht to win its contracts. Argentina tops the table, followed by Brazil and Peru, and Colombia.

At street level, a recent Transparency International (TI) study further exposed how commonplace corruption is in Latin America. The report revealed that the most corrupt group – tied with elected officials – was the police, with 47% of respondents saying that “most” or “all” were corrupt. Local government closely trailed it with a score of 45%. It is to say that corruption is rife in day-to-day life, as well in national politics.

Bribery is corruption’s most common form. In the same TI report, it revealed that Mexico is the bribery capital of the region, with 51% of people saying that they have paid a bribe to access a public service in the last twelve months. Bribes were most commonly paid when accessing schools and hospitals.

Why Latin America suddenly fighting corruption?

The economic downturn prompted by the end of the commodities boom has paradoxically given the fight against corruption a boost. Where once politicians had enough money to pay bribes and build things, in the last five years just the essentials transactions have been prioritised – the bribes. Brazil again exemplifies this shifting tolerance. Rouba mas faz – steals but gets things done – was once an acceptable political attribute. In today’s economic climate, it no longer cuts it.

But there has also been social shift in attitudes towards corruption. The post-dictatorship generations have come of age across Latin America and they believe in democracy, and with it, accountability. Moreover it is easier to protest corruption in a democracy than a dictatorship. Technology and globalisation have also contributed as the internet helps inform and organise citizen action.

Is the anti-corruption fight being successful?

Whilst Lava Jato continues to shake up the region and claim huge scalps, its revelations and results are just the tip if the iceberg in the fight against corruption. But it’s unlikely we will ever see the full profile of the problem.  In Brazil for instance, interim president Michel Temer was cleared of corruption charges in August this year by Congress. He faces another similar vote in October, which he seems likely to survive again. Brazil’s ex Attorney General was convinced that Temer has broken the law but the political class have rallied around him to prevent his impeachment in the interests of economic and political stability. It shows that although the clean-up operation can point its gun at anyone, it is not always allowed to pull the trigger.

Nevertheless, the anti-corruption fight is unprecedented in Latin America. It is a considerable step in the right direction for the region and has genuinely proved that money and power cannot always buy you protection.

Are corruption rankings biased against Latin America?

Latin American corruption is easy to profile and condemn, but perhaps we are unfair on the region. Institutionalised forms of corruption are prevalent – at least to foreign eyes – in the US and European forms of governance and regulation. In the UK the House of Lords is unelected and politically influential, in the US political donations are huge and on the rise, and the EU’s democratic credentials are hard to defend.

Corruption is often in the eyes of the beholder – we are biased in our interpretation of it. But that does not provide a solid defence of Latin America endemic problem. Its nations consistently rank towards the bottom end of respected international indices. However, perhaps the best way of assessing the gravity of the problem is to ask Latin Americans what they think of corruption. You will get a resounding acknowledgement of its presence and a damning condemnation of its consequences.

Source: LatAm Investor

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Geoffrey McRae

About Geoffrey McRae

Geoffrey McRae is the founder of GTSA - Marketing. He is a New Zealander with a strong Agro-business and Real Estate background spanning over 30 years both in his own country and South America. I hope you enjoy reading our news site. Please share it on your social media below.

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