Napoleon Lacroze von Sanden

RN: 162725
Master of Public Policies
Hertie School of Governance

Crony Capitalism in Argentina

-Corruption as a Policy Failure-

Argentina holds the second or third position in the region according to most of the various development indicators (such
as the Human Development Index 1, GDP size2 or GDP per capita3). According to the OECD, Argentina, Chile and
Uruguay are the only countries in the region to have overcome the middle-income trap or are close to doing so.4
Moreover, in the Education and skills pillar Argentina holds the best position from all Latin American Countries, followed
by Chile. Now, when it comes to the World Economic Forums Global Competitiveness Report, Argentina is not only in
the 4th place but way further from the first three -Chile (33), Uruguay (73) and Brazil (81)-, being placed at the 104th
place. As The Economist highlights: countries that do well on the crony index generally have better bureaucracies and
institutions.5 Indeed, looking deeper in the Index of Public Integrity we discovered that, despite being the second best
performing country in the region after Chile -no info is provided for Uruguay though-, Argentina does significantly worse
than many of its neighbors in Judicial Independence - with a 3.12, while Bolivia, one of the worst performing countries
in the region, holds a 3.32).6 Also worse than most of them in trade openness and freedom of the press.7

The last Forbes report on the richest businessmen worldwide, poses (in decreasing order of wealth) Alejandro
Bulgheroni, Eduardo Eurnekian, Alberto Roemmers, Gregorio Perez Companc and Jorge Horacio Brito as the owners
of the largest fortunes in the country. From these, Eurnekian and Roemmers appear as self-made fortunes while the
other three are inherited. In all cases though they date back to no longer than a generation earlier. Two of them are
focused in the Oil & Gas sector, but the sources of wealth are quite diversified when looking at the broader picture
(including banking, airports and infrastructure development, agricultural business or pharmaceutical). Thereby, no clear
pattern seems to arise.

Nevertheless, as Di Tella highlights: corruption is higher where domestic firms are sheltered from foreign competition
by natural or policy induced barriers to trade, with economies dominated by a few number of firms. 8 This leads us back
to our previous indicators on competition. As a matter of fact, The Economist highlights that among big fortunes in
Argentina there is a high level of concentration on crony and rent-seeking sectors. Such assumption is validated except
for the case of Roemmers (pharmaceutics), which despite of being in a sector highly dependent on Government
regulation (but not in the Economists list) only holds 9.08% of the country markets share among many national and
international competitors.9 Mr. Bulgheroni developed his empire as the main supplier of the, at that time, state owned
oil company YPF. The big leap forward for his fortune was given after funding PAE in 1997, which through tenders
managed to operate in the four main hydrocarbons basins in the country. PAE is currently under investigation for
allegedly having payed bribes of up to U$S 300.000.000 to the local Governor and National Minister of Planning in 2014
for extending the tender on Cerro Dragon (the biggest oilfield in the country).10 The Bulgheronis also appeared on the
swissleaks11 and the Panama Papers.12 The company Perez Companc was accused of paying bribes during the so-
called Lava Jato investigation13. Eurnekian, on the other hand, built his fortune after acquiring the control of the majority
of Argentinian airports during the privatizations in 1998 despite owning the State $350 million after just two years of
management. Brito also grew his empire during the 90s by acquiring the tenders to manage provincial public banks.
Agreements were signed for his Banco Macro to be the financial agent of the province of Salta for 10 years and similar
arrangements were signed with the governments of Jujuy and Misiones until it extended to the whole country.

Based on this information, we argue that Argentina is to a considerable degree a case of crony capitalism as the major
fortunes are closely linked to privileged and unfair competition through spurious tenders in a country with fairly law
judicial independence and regulatory quality14. This would place the country on a 7 or 8 level in scale of 1 to 10. Still,
none of these businessmen has held positions in Government nor their family and dependence of the economy on
natural resource revenues is low (1.2 of GDP).15 Empirical studies have encountered the simultaneous presence of
individualistic and statist attitudes in the largest part of the population because the State is seen as important to protect
and guarantee individual goals.16 Citizens may be educated but lack an endorsement of ethical universalism.

Despite having adopted various legal constraints -including the partially approved Law of Penal Responsibility of Judicial
Persons to better fight the private source of public corruption-, Argentina still holds a significant imbalance between high
concentration of discretionary material and power resources, and low normative and transparent legal constraints.

1
See: http://hdr.undp.org/en/composite/HDI
2
See: https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=AR-CL-MX-BR
3
See: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=AR-CL-MX-BR
4
See: WEF Global Competitiveness Report, p. 55: http://www.nmi.is/media/338436/the_global_competitiveness_report_2016-2017.pdf
5
See: https://www.economist.com/news/international/21599041-countries-where-politically-connected-businessmen-are-most-likely-prosper-planet
6
See: http://integrity-index.org/country-profile/?id=192
7
Di Tella & Franceschelli, Government Advertising & Media Coverage Corruption Scandals, National Bureau of Economic Research (2009) http://www.nber.org/papers/w15402.pdf
8
Ades & Di Tella, Rents, Competition & Corruption, The American Economic Review (1999) file:///C:/Users/162725/Downloads/Ades_DiTella_1999_Rents%20Competition%20and%20Corruption.pdf
9
See: http://www.pharmexec.com/country-report-argentina
10
See: https://www.clarin.com/politica/cerro_dragon-cimadevilla-bridas_0_B1jSUYYDmx.html
11
See: http://www.buenosairesherald.com/article/179013/hsbc-is-target-of-swiss-accounts-raid
12
See: http://www.lanacion.com.ar/1890675-panama-papers-aparecen-grandes-empresarios-locales
13
See: https://www.cronista.com/negocios/Arrepentido-de-Petrobras-confeso-sobornos-en-compra-de-Perez-Companc-en-2002-20160603-0097.html
14
See: http://info.worldbank.org/governance/wgi/index.aspx#reports
15
See: https://data.worldbank.org/indicator/NY.GDP.TOTL.RT.ZS?locations=ZJ-AR
16
Catterberg, Eduardo, Los Argentinos Frente a la Politica (1989). See: https://panel.inkuba.com/sites/2/archivos/Catterberg.pdf