The Washington Post
March 13, 2000
Latin Nations Pay Price of Reform

By Anthony Faiola
Washington Post Foreign Service
Monday , March 13, 2000 ; A01

BUENOS AIRES They were the last days of El Dorado, and Victor Alderete knew it.

Alderete, the stout, balding director of the National Pensioners Health Care Agency, issued orders to destroy or cart off
truckloads of incriminating documents. Fernando de la Rua, Argentina's crusading new president who rose to power on an oath
to clean up government, would soon move into the Presidential Palace, and Alderete feared that a raid on his notoriously
fraudulent agency was only a matter of time.

He was right. The raid came in December, and it turned out the agency had been bilked of hundreds of millions of dollars.
Alderete had tried, but failed, to cover his tracks. "There was too much dirt and too little time," said one investigator involved in
de la Rua's takeover of the agency. "Not even bombing the building would have helped."

In the weeks since then, Argentine investigators have become involved in one of the biggest anti-corruption probes in Latin
American history. Alderete and other directors had misappropriated a fortune, they said, and the agency's 4 million poor and
elderly clients had paid the price. As Alderete snatched up new properties, such as a $1 million ranch in Uruguay, his agency
was so broke it could not cover basic benefits for clients such as medicine and visits to the doctor.

But in the wave of corruption that hit Argentina during former president Carlos Menem's flashy decade of free-market reforms,
Alderete--a close friend of Menem's--was only one of many civil servants who feasted on the spoils of new power and fast

Maria Julia Alsogaray, the former head of the environment agency who posed in a fur and little else on a magazine cover while
in office, is under investigation for skimming millions off the top of privatization deals and giving a multimillion-dollar contract for
triple the going rate to a man believed to be her lover. And then there was Mario de Marco Naon. A lowly sub-secretary who
started his government post in 1991 with a Fiat and a humble apartment, de Marco approved bloated government contracts to
companies he owned, then went on a buying spree of lavish properties and luxury cars. He even threw himself a wedding in
Alaska, passing out gold nugget mementos to his 150 guests.

"In Argentina, public money simply became the spoils of war in the 1990s," said Cecilia Felgueras, a close aide of de la Rua
and now in charge of rebuilding Alderete's agency with the help of a team from the United Nations. "We're talking about so
much money--hundreds of millions from just this one agency. And we're only just beginning."

Hopes for Reform

The emerging picture of fraud and cronyism during Menem's 1989-99 administration--when the president was a big-money
icon with his affection for champagne and Ferraris--concerns mainly Argentina. But it also underscores the scope of corruption
across Latin America during a decade of widely applauded free-market and democratic reforms.

The 1990s started with enormous hopes that, with its reforms, Latin America would overcome the corruption that has been a
hallmark of dictatorships and a barrier to economic equality since the 16th-century Spanish conquest. All countries except Fidel
Castro's Cuba had evolved into some measure of democracy. And free-market reforms took root from the Rio Grande to
Tierra del Fuego, giving rise to new hopes for spreading prosperity.

But rather than curbing corruption, experts say, the reforms allowed graft to persist or even expand as dishonest civilian
politicians and their associates tapped into the massive new wealth created by privatization, foreign borrowing and soaring
public spending.

The scale of the problem in Latin America has been compared by some analysts to that of the big grab in Russia after the fall of
communism. And especially in countries such as Argentina--one of the world's largest debtor countries, struggling with
unemployment and burgeoning poverty in the wake of free-market reform--corruption is cited as among the leading reasons
why the reforms have failed to bring a better life to millions of workers.

"Corruption has prevented true free-market capitalism from taking hold in Argentina," Ricardo Gil Lavedra, the justice and
human rights minister, said in an interview.

"Corruption has impeded development and increased poverty, since money has been shamelessly wasted and never reached
projects for the benefit of the people who need help the most," he continued. "It has artificially increased interest rates by
driving us further into debt. . . . At the same time, people who benefited from corruption are almost always those who already
had money in the first place. . . . It has, without a doubt, perpetuated the cycle of the unequal society that we had set out to

As a result, many Latin Americans have begun to lose faith in the power of democracy--as well as free-market reforms--to
make their lives better. A recent study by the MORI research firm in Santiago, Chile, showed that the people of only two
countries in Latin America--Uruguay and Costa Rica, which also rank among the least corrupt in the region--give democracy
an approval rating of more than 50 percent.

Disgusted people in some countries in the region have resorted to democratically elected but authoritarian rulers who appeal to
voters with promises of zero tolerance of corruption and, often, of a slowdown in economic reform. A case in point is
Venezuela's popular president, Hugo Chavez, a former coup leader and left-wing firebrand whose radical, anti-corruption
platform has reshaped the government with a new constitution and a new legislative assembly.

"We have been destroyed by these supposedly [democratic] politicians," Maria Arrarte, a 38-year-old waitress and Chavez
supporter, said at a rally in front of the presidential palace in Caracas last year.

In the past 10 years, civilian presidents in Venezuela and Brazil have been removed from office for corruption involving diverted
money or personal enrichment. In Ecuador, rocked by a brief military coup in January that ended with Vice President Gustavo
Noboa elevated to the presidency, corruption has had a hand in the removal or arrest of four sitting or former presidents in the
past four years.

Mexico, which started the 1990s as a symbol of U.S.-blessed reform under Carlos Salinas de Gortari, has finished the decade
as a very different symbol. Salinas's brother, Raul, sits in jail accused of murder and corruption--some of it connected to
privatization--and the former president has gone into exile in Dublin.

"In Guatemala, they are redoing the privatization of the telephone company that was completed just six months ago, because
the sale was tainted by corruption," said George R. Vickers, executive director of the Washington Office on Latin America. "In
El Salvador, the privatization of their banks ended up with then-President [Alfredo] Cristiani winning ownership of the largest

Some Latin Americans have suggested that the Clinton administration and foreign lenders, while speaking out against
corruption, in practice have avoided sanctioning dirty governments as long as the leaders voiced support for Washington's
free-market economic gospel.

In 1998, for instance, Argentina was ranked as one of the world's most corrupt countries by Transparency International, an
international nonprofit watchdog organization, and a bevy of Menem's closest ministers had resigned after corruption scandals.
But Washington made Argentina its closest ally in Latin America, even awarding it the special designation of a "non-NATO"
ally, reserved for the United States' closest friends.

"The United States clearly made the political decision that supporting Argentina's economic reforms was more important than
having a tough position on what was extraordinarily obvious and widespread corruption during the [Menem] administration,"
said Carlos March, area director for Poder Ciudadano, a Buenos Aires-based watchdog group associated with Transparency

U.S. officials counter that Menem's free-market reforms, in the long run, will create a more open system of government by
putting poorly run public-sector companies into the hands of private industry. But analysts argue that, just as in Russia, it has not
happened so far.

"The point is that unlike what U.S. policymakers believed, free-market reforms alone have not curbed corruption, and in some
cases, they've opened new avenues to make it worse," Vickers said.

Another consequence is dangerous levels of indebtedness, contracted partly to help replenish pilfered public coffers. In 1999,
for instance, Argentina, a country of 36 million, was the largest recipient of loans from the World Bank, receiving $3.1 billion,
compared with $1.9 billion for Russia, with a population of 147 million.

Myrna Alexander, the World Bank director for South America's Southern Cone, said the bank has investigated "a few possible
irregularities" in loans to Argentina last year, but so far has turned up only two cases of apparent fraud, one of which potentially
includes one or more government officials. She refused to give specifics, saying the case is under legal review. She added that
the World Bank strictly monitors loans.

"But we are not naive," she added. "We know that in developing countries, just like developed countries, people are human
beings and things happen."

Change in Argentina

For the most part, anti-corruption efforts have met with little or no success. In Paraguay, the country's leading anti-corruption
official, Daniel Fretes Ventre, is under investigation for inexplicably becoming the owner of valuable properties during his four
years in office. In Nicaragua, Agustin Jarquin Anaya, the country's chief anti-corruption officer, was thrown in jail in November,
charged with fraud after he began to blow the whistle on government corruption.

Argentina perhaps will be the exception. Long-held suspicions of government fraud are being confirmed through new
investigations backed by its austere president, de la Rua. And rather than being viewed as a political attack on Menem, de la
Rua's effort is winning praise as a legitimate attempt to investigate and curb corruption.

At the heart of the campaign is a largely independent Anti-Corruption Office, with a team of investigators, economists and
sociologists mapping out new legislation to increase openness.

"I don't agree with the position that corruption is somehow a cultural problem in Latin America. Corruption is not something in
our blood," said Roberto de Michele, director of the office's transparency project. "What it is, however, is a societal problem
created by weak and unstable political institutions. We are now embarking on a plan to change that in Argentina. But let's not
fool ourselves, this is going to take time. And its success is going to depend . . . on the ability of our judicial system to handle
some extremely tough cases."

Inside a maze of dimly lit corridors at the health care agency formerly headed by Alderete, evidence of his scorched-earth
attempt to eliminate evidence is immediately clear. In an agency with a $2.4 billion annual budget, desks are largely clear of
paper and the piles of files in corners characteristic of public offices in Latin America are mostly absent.

Humberto Lopez, 72, a retired municipal clerk from the rural province of Corrientes, was one of the agency's victims. For
Lopez, the corruption meant he could not afford to get an eye infection checked. For his cousin, a cancer patient, it meant
dipping into savings to see an oncologist.

"Why?" Lopez raged as his lips trembled, "because these shameless people were robbing us retired people. . . . Government
officials? Please! They're nothing more than street thugs!"

With each day, new revelations emerge. On a recent afternoon, Lopez and two other men from the rural province 400 miles
north of Buenos Aires walked into a branch of the Justice Ministry's anti-corruption office located inside the pensioners'
agency. He extended a long and bony hand to investigators, studying them with distrust.

After hearing a brief explanation that a cleanup is underway, Lopez who helps lead a watchdog group for the aged in his
province, warmed up. Things became particularly tough in his poverty-stricken home region last year, he said, when the agency
ran so short of funds that it stopped paying for medical services. Pharmacies and many doctors refused to accept the agency's
coverage for several months.

"You don't know how we suffered," he said. "Do you know what it's like to reach this age and have to beg for medical attention
after working your whole life and paying your dues? We deserve better than to be manhandled by a bunch of corrupt

Lopez did not come without proof. He slapped on the table a packet of photocopied canceled checks obtained from a friendly
bank clerk in his home province. Investigators marvel over the amateur sleuthing shown by the retirees. The documents
indicated that even as the health care provider hired by the agency to serve retirees was refusing to make payments to doctors
and pharmacies, it was depositing thousands of dollars in the personal bank account of an agency director.

Investigators also have found deals with companies that either do not exist or never provided listed services. They have
unearthed contracts such as one with a nursing home co-owned by a friend of Menem's. The facility, investigators said, was
receiving almost twice the average payment per patient as other contractors, despite the fact that five audits had found
conditions there so unsanitary that halls, rooms and floors were smeared with patients' feces.

Besides investigations, a new government openness project is forcing officials--including de la Rua--to make their financial
records available to the public on the Internet. Another Web site has been created to post information on government contracts
and potential bidders, data formerly kept secret in many agencies.

De la Rua also has purged more than 1,000 agents from the the Argentine intelligence service, viewed by many as a hotbed of
extortion artists. To prevent large-scale contraband trafficking, he has dispatched more than 1,000 troops to Argentina's
notorious "triple frontier" with Paraguay and Brazil. In three months, they have seized more contraband than in the last four
years combined.

Additionally, de la Rua is trying to sell Menem's presidential jet, Tango 01, the lavishly upholstered symbol of excess during
Argentina's fast '90s. De la Rua is taking commercial flights on state visits abroad, and his vice president, Carlos Alvarez, hails
taxis or takes the subway after declining the traditional service of a car and driver.

"The issue is not merely corruption, but also government waste and extravagance," de la Rua told reporters recently. "To me,
extravagance is just another form of corruption."

Latin Corruption

Argentina has become one of the more corrupt countries in Latin America, and many Argentines express their dissatisfaction
with democracy and market reforms.

Transparency International ranked countries according to the degree to which they are perceived to be free of corruption. The
assessment is based on surveys of business people, risk analysts and the public in 1999.


00.0 Most

00.0 corrupt

10.0 Cleanest

94. Honduras 1.8

90. Paraguay

82. Ecuador

80. Bolivia

75. Venezuela

72. Colombia

71. Argentina 3.0

70. Nicaragua

68. Guatemala

58. Mexico

50. Jamaica

49. El Salvador

45. Brazil

41. Uruguay

40. Peru

32. Costa Rica

19. Chile

18. United States

3. Sweden

3. New Zealand

2. Finland

1. Denmark 10.0

MORI public opinion poll:

Percentage of respondents who said they were "very satisfied" or "fairly satisfied" with the way democracy works in their

SOURCES: Transparency International; MORI research, Santiago, Chile