THE POLITICAL ECONOMY OF ECONOMIC REFORMS IN
ARGENTINA
Juliana Bambaci, Tamara Saront y Mariano Tommasi∗
Documento 28
∗
Investigadores del Centro de Estudios para el Desarrollo Institucional (CEDI).
Septiembre de 1999
Abstract
In 1989, Argentina entered a process of sweeping transformations in its economic
institutions, which –in turn- have provided for the recuperation of economic growth and
the taming of inflation. The Argentine experience with market oriented reforms has been
regarded by the literature as a salient case of radical and ‘unconstrained’ reform. Yet, a
closer scrutiny of the process and its outcomes portrays that the pace, depth and
characteristics of the adoption of the ‘new economic institutions’ were determined by the
building and maintenance of a pro-reform coalition. This coalition-building strategy, in
turn, was conditioned by the characteristics of Argentina’s political institutions.
The argument we present in this paper is twofold. On the one hand, we contend that the
1989 economic crisis (hyperinflation) provided the incentives that led President Carlos
Menem to initiate reform, and triggered a series of “delegation” patterns conducive to the
adoption of a reformist agenda. On the other hand, we assert that the political and
institutional process of implementing these reforms has left a heavy imprint on the
outcomes of the process. Even in the framework of a favorable partisan composition of the
institutional structure, and a high concentration of power during Menem’s administration,
the pro-reforms coalition which combined economic power with the electoral support of
the peronist party set limits to the reforms. These limits are manifested in the concessions
in design and sequencing, as well as the use of signaling, exchanges and compensations,
that fostered the adoption and implementation of the agenda. Though many of the features
associated with a state-led development model were dismantled, some ‘illiberal enclaves’,
such as the heavily regulated labor market, and provincial economies, survived. More so,
we contend that it was through the maintenance of illiberal enclaves that the fundamental
reforms, privatization, liberalization and convertibility, were made politically viable.
The paper speculates on other issues related to the political economy of reforms. Firstly,
the fact that the outcomes of public policy reform should be approached from a more
micro-analytic perspective than has been the case in the Economics literature. Second, it
suggests a “ vote buying theory” which might facilitate the analysis of the specific
characteristics of economic reform processes in different countries. Third, it propounds
that the sustainability of the new economic institutions is subject to institutional reforms in
the political governance structure.
2
Introduction
In 1989, Argentina entered a process of sweeping transformations in its economic
institutions, which –in turn- have provided for the recuperation of economic growth and
the taming of inflation. The Argentine experience with market oriented reforms has been
regarded by the literature as a salient case of radical and ‘unconstrained’ reform. Yet, a
closer scrutiny of the process and its outcomes portrays that the building and maintenance
of a pro-reform “ coalition” determined the pace, depth and characteristics of the adoption
of the ‘new economic institutions’.1
The argument we present in this paper is twofold. On the one hand, we contend that the
1989 economic crisis (hyperinflation) provided the incentives that led President Carlos
Menem to initiate reform, and triggered a series of “delegation” patterns conducive to the
adoption of a reformist agenda. On the other hand, we assert that the political and
institutional process of implementing these reforms has left a heavy imprint on the
outcomes of the process. Even in the framework of a favorable partisan composition of the
institutional structure, and a high concentration of power during Menem’s administration,
the pro-reforms coalition which combined economic power with the electoral support of
the peronist party set limits to the reforms. These limits are manifested in the concessions
in design and sequencing, as well as the use of signaling, exchanges and compensations,
that fostered the adoption and implementation of the agenda. Though many of the features
associated with a state-led development model were dismantled, some ‘illiberal enclaves’,
such as the heavily regulated labor market, and provincial economies, survived. More so,
we contend that it was through the maintenance of illiberal enclaves that the fundamental
reforms, privatization, liberalization and convertibility, were made politically viable.
The paper proceeds in six sections. In the first section, we summarize the pre-reform
scenario and describe the content of the reform agenda. In the second, we present a general
account of the process of economic reforms and the results associated with them. In the
1
We use the term “ coalition” as a shorthand to follow standard usage, although we view terms such as
“ coalitions” , “ party discipline” and “ fragmentation” somewhat differently from their standard usage in
political science. We try to articulate many of these concepts around a notion of “ vote buying” which
emphasizes the different time horizons (spot/intertemporal) and the “ prices” implicit in political transactions.
3
third section, we study the political-institutional process behind the economic reforms in
Argentina. In the fourth section, we illustrate our argument by providing insights on the
imprint that the reformist coalition left on the reform process. In the fifth section, we
present the main conclusions of the study of the Argentine case, and speculate on other
issues related to the political economy of reforms. In the last section, we present in the
form of an appendix, a tentative framework for a ‘vote buying theory’.
1. The Reforms
Addressing economic reforms requires specification of at least two themes: the main
characteristics of the pre-reform scenario and the content of the reform agenda.
The pre-reforms scenario2
Until the late ‘80s, the Argentine economy was highly regulated by all kinds of laws,
norms and decrees and had an important number of industries, sectors and enterprises
nationalized. Industrialization occurred by a process of import substitution oriented toward
the domestic market. The public sector was growing both in size and in responsibilities but
in an inefficient way. By 1963, the export bias that characterized Argentina in the first
decades of the century was a memory, with exports stagnant around the US$1000 billion
(Figure 1). The rural sector served as the main source of international reserves.
F ig u re 1 : R a tio E x p o rts -G D P
22%
20%
18%
16%
14%
12%
10%
8%
6%
19
55
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
S o u r c e : L la c h & G e r c h u n o f f ( 1 9 9 8 )
This economic development strategy was sustained by a (temporarily) positive sum game
in which the state became the distributing agent. The ever conflicting and growing
demands of each sector were met through negotiation processes developed in separate
2
This section draws on Llach and Gerchunoff (1998).
4
political arenas so as to avoid explicit discord. What made the game feasible was the
artificial pumping up of the economy through inflation, fiscal deficit and protectionism.
directed by the central power. This was achieved and financed, initially by the important
accumulation of international reserves during the belle époque years. However, the
continuous expansion of public expenditures over revenues eroded the national accounts
and led to important fiscal deficits (Figure 2). The government financed such deficits by
monetary emission that generated substantial inflation (Figure 3).
Figure 2: Fiscal Result of the Public Sector
(% GDP)
0
19
-2 58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
-4
%
-6
-8
-10
-12
-14
Source: Llach & Gerchunoff (1998)
Figure 3: Annual Inflation Rate
1958-1998
10000.0
log
1000.0
arit
hm
ic
sc 100.0
ale
10.0
1.0
19
58
19
60
19
62
19
64
19
66
19
68
19
70
19
72
19
74
19
76
0.1
Source: Indec
5
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
There were, of course, several attempts –from orthodox to income-oriented policies- to
stabilize the macroeconomy. All of them failed. The reasons typically included lack of
political support, fragile decision making and political institutions, a strong and politicized
union movement, as well as short-term needs imposed by external or internal disequilibria.
Temporary fiscal balance was sometimes achieved through revenue increases –normally on
international trade taxes– rather than through a serious ordering of expenditures.
Economic performance was characterized by stop-and-go cycles, partly due to low export
diversification and consequently the strong dependence on the rural sector for international
reserves. In the second half of the century, the Frondizi government (1958-1962) attempted
to deviate from that dependence by expanding the import substitution process (that under
Perón reached consumption goods) to heavy industries like steel and chemicals (Figure 4).
A new attitude towards foreign capital3 and investments allowed important results for
industrialization. However, one of the main failures of the “ development thesis” was its
strong domestic market orientation, even for the new industries. Consequently a new
recession occurred when the economy was unable to maintain the capital inflow.
Fig ure 4: In ve stm e nts
300 00
250 00
Pe
so 200 00
s
of 150 00
19 100 00
96
500 0
0
19
55
19
56
19
57
19
58
19
59
19
60
19
61
19
62
19
63
S ource: Llach & G erchunoff (1998)
Between 1958 and 1989, the only period of sustained growth for more than 3 years were
the years 1966-1973 (Figure 5). Growth in that period was the result of favorable
3
One of the most important decisions of the period was the opening of the oil sector to foreign companies
which obviously raised important opposition not only in the peronist party but also between radicals. When
the radicals assumed office in 1963 they ended those contracts with the consequent impact on credibility in
the eyes of the international business community.
6
international context,4 the payoff of the investments to made during the “ development” era
and some stability of the policies towards the rural sector. These factors allowed an
important expansion in all sectors of the economy, especially in industry. Inflation and
stagnation, though, have been the more common economic scenario throughout the period.
Figure 5: Evolution of Real GDP
1958-1996
350000
300000
pe
so 250000
s
of 200000
19
150000
96
100000
50000
19
58
19
61
19
64
19
67
19
70
19
73
19
76
19
79
19
82
19
85
19
88
19
91
19
94
Source: Llach & Gerchunoff (1998)
Reforms
We conceive economic reforms as those policies that designate the market as the principal
mechanism to allocate resources, and consequently dismantle state regulations establishing
special privileges, protection from international competition or subsidies to particular
sectors. More specifically, and in accordance with ‘conventional wisdom’, we refer to the
policies which stem from the Washington Consensus blueprint.5 Throughout the paper we
consider that the Washington Consensus is both the ‘agenda of the reformer’ as well as the
benchmark with respect to which one measures the degree of ‘success’ in the
implementation of reform.
4
This was due to sharp economic growth and increased international trade and capitals movements,
important technological changes as well as an increased cooperation and coordination of policies between
Europe and the US.
5
Williamson (1994) defines this blueprint as a set comprised of the following ten policies: fiscal discipline,
reorientation of public expenditure toward building human capital and infrastructure, tax reform (broaden
base and cut marginal rates), financial liberalization (end interest rate controls, etc.), exchange rates (unified
and competitive), trade liberalization (reduce tariffs and eliminate non trade barriers), welcoming foreign
7
2. The General Picture
That Argentina is, in general terms, a successful case of radical economic reform is hardly
questionable. Yet, approaching the issue in relation to different policy areas, and
comparing the results of the process to our benchmark –the Washington Consensus-, leads
us to qualify this affirmation. Lora’s (1997) index for structural reforms6 clearly illustrates
the point. Whereas on average, the index for Argentina has increased dramatically,
especially for the period 1988-1993, even compared to the rest of reforming Latin America
(Figure 6); the indexes for the different policy areas present great variations (Figure 7).
Figure 6: General Index of Structural Reforms
1985-1995
0.70
0.65
0.60
0.55
0.50
0.45
0.40
Argentina
0.35
Average
0.30
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
Lora (19977)
Fiscal Index
Commercial Index
1.00
1.00
0.80
0.80
0.60
0.60
0.40
Argentina
Argentina
0.20
Average
0.00
Average
1995
1994
1993
1992
1991
1990
1989
1988
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
1985
0.00
1987
0.20
1986
0.40
direct investment, privatization, deregulation (stop only for environmental, safety or prudential –bankingreasons), and secure property rights.
6
Lora (1997) builds an index to measure the degree of neutrality of economic policy, based on trade, fiscal,
financial and labor policy, and privatization indicators. The index has values from zero (non-neutral policy)
to one (neutral policy) in each policy area, and the general index is a simple average of the former. The index
shows the degree to which structural reforms have been implemented.
8
Financial Index
Privatization Index
1.00
1.00
0.80
0.80
Argentina
0.60
0.60
Average
0.40
0.40
Argentina
0.20
0.20
Average
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
0.00
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
0.00
Labour Index
1.0
0.8
0.6
0.4
Argentina
0.2
Average
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
0.0
Source: Lora. (1997)
In this section we summarize the fundamental economic reforms implemented in each
policy area and the economic results associated with the process. The Argentine economic
reform process proceeded in three stages: 1989-1991, 1991-1995, and 1995 onwards.
During the first period, the government initiated the reform process through the
privatization of state owned enterprises7, fiscal reforms and trade liberalization. The
policies implemented during this period were tainted by two factors. On the one hand,
structural reforms were bundled with stabilization policies. Reforms were conceived as a
means to address the short term fiscal urgencies of the time. On the other hand, several of
the reforms, as well as the speed with which they were implemented and the form in which
they were bundled, responded to the need of the government to send clear signals of
commitment to the reformist course, 8 especially in light of the tradition of the Peronist
7
During this period, the Ley de Reforma del Estado allowed the privatization of most of the state owned
enterprises, at the time it delegated to the Executive Power the definition of the details of these policies,
keeping only the control faculties which were embodied in the Comisión Bicameral de Control de las
Privatizaciones (non binding decisions).
8
One clear example of this multiple economic/political role of some reforms is given by privatizations. They
helped recompose the fiscal coffers of a state whose capabilities of generating resources (either through
taxation or borrowing) were limited. On the other hand, their early and quick implementation in some of the
most symbolic and large sectors (airlines, telephones) helped deliver commitment signals regarding the
9
Party. 9 Overall, this resulted in: deficient design, lack of transparency, overaction in order
to portray credible signals and the prioritization of stabilization and short term fiscal
considerations. Yet, stabilization during this period failed, resulting in renewed inflationary
episodes in 1990 and the resignation of two Ministers of Economy.
The implementation of the Convertibility Plan in 1991 marks the beginning of the second
period, during which most of the reforms were implemented. This period evolved in a
context of economic stability and hinged on the economic expansion associated with
Convertibility. The expansion of aggregate demand and the consumption boom generated
by the stabilization of the exchange rate and the inflow of foreign capital configured a
favorable scenario that fostered support for the reformist course.
Figure 8 : Current Account Deficit
6000
4000
2000
0
mm$ 1990
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
-2000
-4000
-6000
-8000
-10000
-12000
year
Source: Financial Statistics, FMI
One of the most striking characteristics of this period was an increase in the administrative
capabilities of the state in respect to economic policy making. The arrival of Domingo
government’s policy orientation. See Tommasi and Velasco (1996) and references there for a more general
treatment of signaling strategies throughout economic reform processes.
9
The peronist party is closely associated with the inward looking, state centered development strategy. In
point of fact, it was during Peron’s first administrations (1945-1951 and 1951-1955) that most of the
economic institutions associated with the state were established.
10
Cavallo10 to the Ministry of Economy with a team of technicians from a prestigious thinktank gave the reform policies a unity and coherence which they did not have before.
It was during this period when major reforms were enacted: monetary policy
(Convertibility Law and Central Bank Independence), fiscal reform (simplification of the
tax system and strengthening of the tax collection agency), liberalization of internal and
external markets, and more privatizations.
But, as soon as the economic situation started improving, some of the traditional
manipulation of public funds for electoral purposes reappeared, weakening the fiscal
situation. This fragility became apparent when the Tequila shock hit the Argentine
economy in 1994. Interestingly, that renewed sense of crisis also gave room for the last
bout of important reforms, including pension reform, some labor flexibilization, and the
privatization of some provincial banks.11 It is worth noting that the fears of a return to
economic instability after the Tequila shock, helped solidify the reelection of Menem,
under the idea that the President and his economic team were the best pilots in stormy
economic waters.
In 1994/5 we enter the third period of the reform process, during which the general
reformist course has been maintained, but there have been few advances. This fact begs the
question of the persistence of the pro-reform incentives on the executive, especially given
the possibility of generating antagonisms in its own support bases.12
There is a gap between the agenda of reforms –as presented in the Washington Consensus-,
and the reforms effectively implemented. In general terms, Argentina presents a
fundamental change in the incentives that compose the economic system vis-a-vis the
10
On Minister Cavallo as a reformer, both on his technical as well as political skills, see Corrales (1997). The
author argues that it was Cavallo’s political rather than technical skills, which ensured the success of the
Convertibility Plan. In our view, the later turn of Cavallo into a political candidate himself, also imprinted
some features to the later reform process.
11
It is interesting to notice that the last two reforms are (although partial) advances on the fronts that we will
argue were left relatively untouched in the first big round of reforms, precisely because of coalitional politics.
12
The deceleration of the reform pace could be read as a sign of weakening of the reformist intentions of the
president, as well as a gradual process of institutionalization and a tendency to a more inclusive mode of
conducting policy, which could lead to less spectacular but perhaps more sustainable results. The latter view
is well articulated in Palermo (1998).
11
persistence of illiberal enclaves, that is: the heavily regulated labor market, and the scarce
advances in the reforms at the provincial levels, as well as in the relation between the
Nation and the Provinces.
Table 1
Advances in the Reform Agenda
Issue
Washington Consensus
1. Fiscal discipline
2. Reorientation of public expenditure toward
building human capital and infrastructure
3. Tax reform (broaden base and cut
marginal rates)
4. Financial liberalization (end interest rate
controls, etc.)
5. Exchange rates (unified and competitive)
6. Trade liberalization (reduce tariffs and
eliminate non trade barriers)
The Good13
The So-So
X
X
X
X
X
X
7. Welcoming foreign direct investment
8. Privatization
9. Deregulation (stop only for environmental,
safety or prudential –banking- reasons)
X
X
X
10. Secure property rights
?
Cars?
Iron and
Steel?
Paper?
Sugar?
Textiles?
Tyres?
Footwear?
Regulation?
Labor maket?
Provincial
governments?
The Argentine Economy After the Reforms
The stabilization plan together with the state reform program and the liberalization of the
domestic and external markets successfully transformed the economy. However the results
were not uniform among the different sectors. The main achievements were on the
macroeconomic fundamentals. Argentina recovered GDP and investments growth (Figure
9). Since 1991 the economy grew on average at 6.8% per year which translates to a 55%
growth between 1991and 1998.
13
The reader should note that the items selected for this column are far from what one would consider the
economists’ ideal world, particularly on the fiscal side, yet we have placed them in this column in order to
capture the very important advances registered in these areas.
12
Figure 9: Evolution of Real GDP and Investments
1970 - 1998
(quartely data)
16000
4000
3500
GDP
(M$ prices of 1986)
14000
13000
3000
12000
11000
2500
10000
2000
9000
8000
1500
Internal Gross Fixed Investments
(M$ prices of 19866)
15000
7000
1998
II
III
IV
1991
II
III
IV
1984
II
III
IV
1977
II
III
IV
1000
1970
6000
The Convertibility plan, a shock exchange-rate based stabilization plan, dominated the
inflation rate.14 Pegging the exchange rate to the dollar generated a positive confidence
shock among domestic and international investors, as it eliminated the devaluation capacity
of the executive power and backed the local currency with a reliable one. At the end of the
first year consumer price increases fell below 20% per annum, later, as shown in Figure 3
the annual inflation rate declined to the current level of 0.7%. International interest rates
decreased, as did country risk, which lead to a considerable drop in domestic interest rates
that, in turn, generated a boom in investment.
The intrinsic characteristics of the Convertibility plan required a very strict fiscal discipline
to be able to generate the necessary international reserves. The sharp reduction in inflation,
combined with the growth in consumption, produced an almost immediate increase in
fiscal revenues (through the Olivera-Tanzi effect). The simplification of the tax system and
the increased importance of the tax administration body helped recompose the fiscal
revenues (Figures 10 and 11).
14
The success of the Convertibility plan in stabilizing the Argentine economy is related to certain features
which made for the re-building of the monetary institution. The government addressed the lack of credibility
that people had on the local currency through the fixing of the exchange rate to the currency people were
demanding: the dollar, and generating the conditions for competition between these two currencies (i.e.
13
F ig u r e 1 0 : P e rc e n ta g e C o m p o s itio n o f T a x R e v e n u e s
(D G I- A d u a n a ) 1 9 8 8 -1 9 9 5
100%
80%
60%
40%
20%
0%
1988
1989
G ro s s V A T
1990
1991
In c o m e T a x
1992
1993
1994
T a x e s o n T ra d e
1995
O th e rs
S o u rc e : C E C E n 1 0 , 1 9 9 6
Figure 11: Evolution of Fiscal Revenues as % of GDP
1987-1998
18%
16%
14%
12%
10%
8%
6%
4%
2%
Total Revenues
Tax Authority
Social Security
0%
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Source: Carta Economica, several issues
To gain competitiveness, efficiency and to be able to continue with reforms in other areas,
the government implemented a very aggressive privatization program in which it sold state
assets in sectors ranging from telephones, energy, water provision, petrochemicals, steel
and air transport. The program also included the franchising of other public services such
as trains, ports and roads. The government collected $37,000 billion between 1990-1998:
establishing freedom for transactions in any currency, backing the monetary base with dollar reserves in the
Central Bank and fixing a 1 to 1 parity, among others).
14
$12,210 billion in cash, $21,090 billion in bonds and bought back external debt and $3,700
billion in transfer of liabilities to the private sector.
The liberalization of the domestic and external markets comprised the elimination of
almost all internal barriers and exports taxes as well as by the reduction of tariffs. There
was also a sharp reduction in the variation and volatility of tariffs. All these reforms
produced an important flow of goods to the country (Figure 12). Imports reacted almost
instantly to the reduction in tariffs and when the implementation of the bundle of reform
reduced production costs, exports increased sharply to the level of US$ 25,000 billions. As
shown in the figure between 1990 and 1994 exports ranged from US$10,000-15,000
billion. Finally in 1995 there was the first big step up in which they increased over the
US$20,000 billion threshold.
Figure 12: Total Exports and Imports
30000
25000
M 20000
M
u$ 15000
s
10000
5000
0
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Total Exports Total
Impots
15
3. The Political and Institutional Process of Economic Reforms15
The literature has stressed the fact that institutional reform is a rather counterintuitive
outcome. Different authors have referred to the collective action dilemmas, and the
distributive conflicts likely to arise when reforms are attempted. They even placed doubts
on the possibility that political leaders will actually embark on such a process.16
Successful reform requires the presence of a set of conditions which both produce the
incentives for the emergence of a pro-reform governmental actor, and enable mechanisms
for neutralizing opposition (in order to override distributive conflicts) and mobilizing
support (through the solving of collective action dilemmas). Furthermore, reforms in
general, and economic reforms in particular are the outcome of a political and institutional
process. They contain the logic of the political institutional framework and specific
historical circumstances in which they are adopted.
In this section we intend to provide insights on the main traits of the political and
institutional process of economic reform led by Carlos Menem. The issues we address are
threefold. Firstly, why does an elected politician embark on a reform process?. Secondly,
how capable is that politician of leading a reform process?. Thirdly, how can he make
economic reform politically viable?. Before attempting to answer those questions, we
present a brief summary of the main characteristics of the Argentine institutional structure.
15
This section draws heavily on Juan Carlos Torre’s excellent studies of the process. See Torre (1998) and
Gerchunoff and Torre (1996).
16
The typical arguments are as follows. Collective action dilemmas arise from the fact that economic reforms
have the characteristics of public goods and therefore, if actors were left to find a solution on their own, there
may be no politically viable transition to a new policy equilibrium (Haggard, Lafay and Morrison, 1995;
Geddes, 1994). The distributive conflicts that arise from the reforms respond to the fact that the new policies
will benefit some groups at the expense of others. These conflicts are resolved through the balance of power
between the ‘winners’ and the ‘losers’ of the new policies, but the probabilities that the losers may prevail
(especially if there is a lack of compensatory mechanisms) are higher (Fernández and Rodrik 1991, Rodrik
1996, Tommasi and Velasco 1996, Martinelli and Tommasi 1997). These possibilities are enhanced by the
fact that while the costs of reforms are concentrated, its benefits are, in general, diffuse. At the point of
initiating reforms, the ‘losers’ are already organized as a group. On the other hand, potential ‘winners’ are
bound to face collective action dilemmas that are augmented because the outcomes of the reforms are
uncertain and the prevailing institutional arrangements amplify the veto power of the ‘losers’. The argument
is that the interests vested in the state hinder the possibilities to carry out dramatic transformations that
involve an alteration in the distribution of power (Haggard and Kaufman, 1995). From the public choice
perspective, the claim has been that politicians face no incentives to initiate market oriented reforms. Since
the politicians prime interest is winning elections (or being re-elected), they would rather not impose ‘harsh
medicines’ on their constituencies (Przeworski, 1991). Furthermore, certain institutional and political factors
(such as ties to a particular constituency and short tenure) may lead politicians to discount the future gains
out of hand (Alesina, 1988).
16
Argentina: Institutional Framework17
The Argentine Constitution establishes the Madisonian principles of separation of powers
and checks and balances in different levels of the political system. The presidential form of
government defines a division of power between three independent branches with capacity
for mutual control: executive, legislative and judicial powers. A further division occurs
between the Chamber of Senators and Deputies in the legislature, as well as between the
national government and twenty four subnational jurisdictions.18
Those basic characteristics, together with electoral and political party laws which confer
wide power to the provincial political leaders, lead to a relatively fragmented political
system. This is combined with a set of formal and informal powers granted to the national
executive that give very peculiar features to the Argentine political economy. In short:
there is oftentimes an excessive dependence on provincial powers (specially on provincial
governors) to pass national legislation, as well as excessive discretion of the national
government in intergovernmental and provincial issues that should be more stable and
independent (Spiller and Tommasi, 1999; Iaryczower, Saiegh and Tommasi, 1999).
The composition of the Senate and the laws governing the election of representatives for
the legislature give some particular features to the federal nature of the system. Even
though the Senate is in essence the body representative of the provinces and the Deputy’s
Chamber the locus of representatives of ‘the people’, the provinces’ function as electoral
districts confers a federal nature to both Chambers. The Senate is composed of two
representatives from the majority of each province19. The Deputy’s Chamber is composed
of the representatives of each jurisdiction according to population density and regarding
the following rules: no jurisdiction will be entitled to less that 5 members and no district
should receive less representatives that it had in the 1973-6 democratic period. The most
salient characteristic regarding both chambers is the overrepresentation of low density and
17
This brief description draws on Spiller and Tommasi (1999), a larger and deeper study on the Argentine
institutional structure, its evolution and effects on public policy.
18
That is, 23 provinces (since 1990, when the National Territory of Tierra del Fuego achieved provincial
status) and the Federal Capital, which since the 1994 Constitutional Reform has become Ciudad de Buenos
Aires and was granted political autonomy.
19
The 1994 Constitutional Reform increases the number of representatives to three (two from the majority
and one from the minority). This reform will be taken to effect in 2001.
17
poor provinces, which is –of course- higher in the Senate than in the Deputy’s Chamber.20
Low density and poor provinces, which comprise 20% of the population, are entitled to
58% of the Seats in the Senate and 31% of the seats in the Deputy’s Chamber.
Furthermore, throughout history the provincial organization of the National political party
has played a major role in the selection of candidates for the legislature (and, in the case of
the Senate, the representatives elected by the provincial legislatures). This has rendered
legislators less dependent on the national organization of the party or local constituencies,
and more dependent on the national’s party organization at the provincial level. This has
important implications regarding party discipline and the centrality of governors as
political actors. Whereas in general it has been assumed that the Argentine party system
has relatively high levels of discipline, the fact that federalism confers a key role to the
party leaders suggests that the party discipline is decentralized, a fact that might have been
obscured by the repeated military interruptions and by the existence of a few extremely
strong and charismatic national leaders (like Perón).
Two parties have dominated the political arena: the Peronist (PJ) and the Radical (UCR)
parties. This dominance has been tempered by the presence of a third party: the UCeDe
from 1983 to 1990 -engulfed by Peronism after Menem’s ‘conversion’ to neoliberal
politics-, and the Frepaso since 1991. The political arena is completed by a number of
small parties, some of them with leverage only at the provincial level, others of a more
personalized nature.21 The Radical Party and Frepaso joined forces in the ‘Alianza por el
Progreso y la Justicia’ (Alianza) for the 1997 legislative elections and have remained as
partners.
The fragmentation of the Argentine polity poses serious difficulties for its ability to sustain
collective action in the pursuit of public goods. Consequently, pork and log-rolling (as byproducts of national public policy) appear as a frequent characteristic of political
negotiations. On top of that, some discretionary powers of the president, render most
20
Regarding this point, the reader should bear in mind that the territorial distribution of both population and
wealth in Argentina is uneven. The provinces of Buenos Aires, Córdoba, Santa Fé, and Mendoza account for
78% of the national industrial production and 70% of the country’s population.
21
Such as the cases of Cavallo’s “ Acción por la República” and Beliz’s “ Nueva Dirigencia”
18
agreements relatively unstable (Spiller and Tommasi, 1999; Iaryczower, Saiegh and
Tommasi, 1999.)
a. Why Reform? ( and Who Reforms?)
One of the most salient issues regarding the political economy of reforms stems from the
apparent inconsistency between democratic regimes and economic reforms. This
inconsistency stems from a politician’s need to respond to the interests of his/her electoral
base in order to provide for his permanence in power. Rigorous economic policies offer
unappealing costs, and benefits that are either too long term or else unsecure. Many authors
have regarded this as one of the main obstacles to the emergence of a democratic politician
committed to economic reform. Yet, the successful enactment of economic reforms in
many countries during the last twenty years indicates that reformist governments are bound
to appear also in democratic regimes.
The case of Argentina is particularly interesting since the reformist government is not only
democratic but also based on a populist party, associated with statist and inward looking
economic policies. According to Rodrik “ it is ironic that these reforms were instituted
under a Peronist president, Carlos Menem, since Peronism has been virtually synonymous
with populism and protectionism. Within a year reforms had already gone further than
those adopted over a period of decades in the outward-oriented East Asian countries which
long served as the example of choice for countries like Argentina” (1993, p. 356).
In this section we shed some light on the incentives which led Menem to enact reforms.
The argument contends that the crisis experienced by Argentina towards the end of the
1980’s forced the national Executive to embark in actions leading to achieve stabilization,
a collective good whose stakes rised in this context. It is worth noting that, as the only
political actor in the Argentine institutional framework which is elected by a nationwide
constituency, the National Executive is the institutional actor with “ more encompassing”
interests, and hence the only one who might possibly initiate such reforms. Why, then, did
Carlos Menem embark in a reform process at the onset of his mandate?
Carlos Menem assumed office in 1989 in midst of a deep crisis. It was the economic crisis,
which exploded in the hyperinflationary bout of June/July 1989, coupled with the political
19
and social crisis associated with it, that ‘forced’ Menem to embark in a reformist course.
There is an important caveat to the argument that contends that a democratically elected
politician would not advocate for a reform program which, due to the costs it imposes to
his constituency, puts at stake his political career. As Geddes (1994) and Torre (1998)
among others have recognized, the primordial interest of the politician is the survival of the
structure from which he/she derives power. Consequently, a crisis whose magnitude puts at
stake this structure, generates the incentives to embark in actions leading to ensure the
survival of this structure, even if this imparts costs to his constituency. This, we argue was
the case in Argentina.22 Also, at the time of initiating reforms, the population was more
tolerant to experimenting alternatives than at other points in time. And, as we argue later,
the urgency of the situation lead to a series of formal delegation patterns that also increased
the chances, and hence the expected political payoffs, of implementing wide changes in
policy orientation.
If that reasoning is correct, there is a window of opportunity for deep policy changes. The
‘content’ of this policy shift was to be determined by the ideas which reunited scholars,
policy makers and the international community. After the 1982 ‘Debt Crisis’ a new
consensus of the causes of the recurrent crisis and possible solutions for Latin American
economies, the so-called Washington Consensus, gained popularity.
The reform agenda was adopted in Argentina as a consequence of the opportunism of a
political actor, the Executive power. Moreover, there are certain features of the context
which are favorable to Menem: initiating reform during the honeymoon period, being able
to blame the last (UCR) administration for the crisis, as well as other more political and
institutional features on which we concentrate in the next sections. The alignment of these
several factors, including a favorable international atmosphere, was quite special, and helps
to understand why this reformist effort, unlike all previous ones, was successful.
b. The political institutional resources for reform
22
Consequently, one should expect that acquiring stability would have an effect on these preferences,
expectedly, allowing for a more relaxed attention to the political objectives. This is, in a sense, consistent
with Rodrik (1994)’s notion that the likelihood of a reform is a function of the ratio of net social gain to net
reallocation (redistribution) necessary. In times like those of Argentina in the early 1990’s, the efficiency
gains from halting hyperinflation were large enough to swamp many distributive considerations (see also
Mondino, Sturzenegger and Tommasi (1996), proposition 3).
20
The policy preferences of each actor are seldomly mirrored by the policy outcomes. Public
policy in a democratic system is the result of a political-institutional process in which
many actors have influence.23 In the Argentine case, the partisan distribution of
institutional power, the delegation of legislative faculties from the Congress to the
Executive and the control over the Supreme Court, as well as the use of certain resources
of doubtful constitutionality enabled the Executive to concentrate power. In this section we
address the distribution of institutional power during the first (1989-1995) and second
(1995-1999) Menem administrations and the delegation mechanisms present at the onset of
his first mandate.
Distribution of Institutional Power
The electoral results throughout Menem’s presidency have been favorable to the party in
government (Table 2). Elections have conferred President Menem with an ample mandate
at the onset of his first administration, and in successive electoral contests the outcomes
have further reinvigorated the reformist course.
Table 2
Electoral Results, 1989-1997
PJ and
allies
Alianza
UCR and
allies
Center
and
Provincial
Parties
Left and
Center
Left
Parties
(including
Frepaso)
Others
(a)
(b)
(c)
(d)
1989 (b)
1991 (a)
1993 (a)
1994 (c)
1995 (b)
1997 (a) (d)
46.60%
40.40%
43.10%
38.80%
49.90%
36.30%
-
-
-
-
-
36.30%
33.10%
29.10%
30.20%
20.50%
17.00%
7.00%
12.00%
16.20%
18.00%
11.70%
0.50%
9.20%
6.80%
10.50%
3.10%
16.70%
30.70%
5.70%
1.80%
3.80%
5.70%
12.20%
1.80%
5.50%
Legislative elections.
Legislative and presidential elections.
Elections for Constituent Assembly.
Votes for the Alianza excluding those corresponding to UCR and Frepaso in districts where
they presented separate tickets; votes for left and center left parties including those of the
Frepaso – when they presented different tickets- and others parties. Adding the votes
corresponding to UCR, Frepaso and Alianza the total would be 45.6%
Source: EIU (1998)
23
The extent of each actor’s influence is determined by the formal and informal rules governing the decision
making processes in a polity.
21
Favorable electoral results were mirrored in the resulting distribution of institutional
power, which has favored the Peronist party. Between 1989 and 1997 the Peronist Party
was entitled to the majority of seats in both Chambers of the Legislature, as well as to a
large fraction of the provincial administrations (Tables 3, 4, and 5). Whereas in the case of
the Senate, the number of Peronists sufficed to approve legislation, in the case of the
Deputy’s Chamber, the PJ only had a simple majority during the 1995-1997 period. The
remaining seats in the legislature were principally held by the radical party, as well as
small and provincial parties. It is important to note that in this framework, the support of
these parties was instrumental to the objectives of the Executive, specially in the Lower
House. Also, these small parties had strong incentives to negotiate with the government
(Jones, 1997).
22
Table 3
Partisan Composition of the Chamber of Deputies 1987-1999
Deputy Periods (1)
Political Party
1987-1989
1989-91
1991-93
1993-95
1995-97
(3)
1
9
9
7
9
9
%
%
%
%
%
42.9
50.0
50.2
50.2
52.1
46.1
37.0
33.1
32.7
26.9
2.8
4.7
2.0
2.0
0.8
Center-Right Provincial
Parties
5.9
7.1
9.3
9.3
8.2
%
4
6
.
7
2
6
.
5
0
.
4
1
0
.
5
Center-Left and Left Parties
2.4
1.2
2.0
2.7
1.6
Partido Justicialista
Unión Cívica Radical
UCeDe
1.2
MODIN
Frepaso
3.1
9.7
Total
100
100
100
100
100
seats 254
seats 254
Seats 254
seats 254
seats 254
1
6
.
0
1
0
0
s
e
a
t
s
2
5
4
(1) Deputy periods begin on December 10 of each odd year and end on Dec. 9 of each odd year.
Source: Jones (1998)
23
Table 4
Partisan Composition of the Senate, 1986-1998
Political Party
Partido Justicialista
Unión Cívica Radical
Centre-Right Provincial
Parties
Frepaso
TOTAL
Senate Periods (1)
1986-1989
1989-1992 (2)
1992-1995
199
5199
8
%
45.6
39.1
%
54.4/54.2
30.4/29.2
%
62.5
22.9
%
55.6
29.2
15.2
15.2/16.7
14.6
13.9
99
100
100
46 seats
46/48 seats
48 seats
th
1.4
100
72
seat
s (3)
th
(1) Senatorial periods begin on Dec. 10 and end on Dec 9 every 3 years
(2) In 1990 the then territory of Tierra del Fuego achieved provincial status. The province
elected two senators in 1992.
(3) The number of senators should be 72 (3 or each province and 3 for Buenos Aires City) the
difference arises because there are some seats corresponding to Catamarca still vacant.
Source: Jones (1998)
Note for tables 2 and 3: All seat totals are based on election results and do not account for
minor seat changes due to defections during the congressional term of a deputy or senator.
These defections are however relatively infrequent and minor in scope. For the PJ in a few
instances parties which represent PJ splinters at the provincial level are included with the
PJ total above. Finally, included with the PJ and UCR totals are those candidates elected
on the PJ/ UCR lists. In a few isolated cases members of the PI, PDC and other parties
have been elected on the ticket. This phenomenon is less common for the UCR, but occurs
on occasion. Center-Right Provincial Parties effectively compete in only one province.
They tend to occupy the center-right/right portion of the ideological spectrum. The totals
for FREPASO include deputies elected from parties (Frente Grande, Unidad Socialista)
which later joined together to form Frepaso.
Table 5
Partisan Composition of Provincial Governments, 1987-1999
Party
Partido Justicialista
Unión Cívica Radical
Provincial Parties
Total
1987-1991
1991-1995
1995-1999
17
14
14
77.30%
60.90%
60.90%
2
4
5
9.10%
17.40%
21.70%
3
5
4
13.60%
21.70%
17.40%
22
23
23
100%
100%
100%
Source: Anuario Clarín, 96/97
24
In addition, Menem frequently resorted to the use of two types of legislative instruments of
dubious constitutionality –especially until 1994 Constitutional reform24-: the decrees of
‘necessity and urgency’ and the line-item veto (Table 6). The use of decrees of necessity
and urgency during the Menem presidency far exceeded the historical trend (Figure 13).
Figure 13: Number of Decrees of Necesity and Urgency 1853-1998
70
60
50
quantity
40
30
20
10
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1983-89
1853-76
0
Source: Molinelli, Palanza and Sin (1999)
Table 6
Presidential Vetoes
President
Period
Vetoes
Total
Alfonsín
Menem I
Menem II
1983-1989
1989-1995
1995-1997
Total Vetoes
Line-item
37
47
32
Source: Molinelli, Palanza and Sin (1999)
24
The reform recognizes and sets norms over these legislative instruments.
25
12
61
23
49
108
55
In this manner, electoral results conveyed the party in government with ample institutional
resources. The favorable partisan composition of the institutional veto points was furthered
by a law that increased the number of members of the Supreme Court from 5 to 9. Through
this device Menem was allowed to appoint four judges (with agreement of the Senate).
When one of the Ministers of the Court resigned in protest, Menem was granted the
opportunity for a fifth appointment.25
This composition restricted the institutional negotiation process to political actors of the
party.
Delegation Mechanisms
We argue that a second effect of economic crisis is as a trigger for a series of “ delegation”
patterns. In particular, we identify the political agreement for the anticipated presidential
succession, and two laws by which the Executive was conferred with ample margins for
defining the details of the reform policies. 26
The crisis helped to forge a political agreement between the two major parties: the UCR
(the outgoing administration) and the PJ. The agreement was made to advance the
presidential succession in order to deal with the economic crisis. In this framework,
President Alfonsín (1983-1989) resigned, Menem agreed to take office five months in
25
The interference of politics in the composition of the Supreme Court seems to be a constant in Argentine
institutional history. According to Spiller and Tommasi (1999) since 1946, the average tenure of Supreme
Court Justice in Argentina has not exceeded 4 years. In contrast, until that date, the average tenure was 12
years. Also starting in 1946, due to the military interruptions and subsequent redemocratization processes
many presidents got to appoint all of the Supreme Court members that held office during their tenure.
26
The relation between crisis and delegation can be illustrated with the following metaphor. Imagine a town
on fire, people running out of their houses towards the margins of a river beside the town. Exactly where the
people are reunited there is a bridge, which is presumably going to catch fire as well, and a bus. The bus
driver calls all the people inside the bus, and proclaims that he will save them by taking them across the
bridge to the other margin of the river, a place where –he says, nobody knows for certain- there is no fire and
everything is so much better. Jumping inside the bus is dangerous, the bridge could break, the driver could be
a crazy maniac, not know how to drive, and nobody knows what things are like on the side of the river. More
so, going inside the bus means leaving behind all belongings (needless to say, those belonging were sooner or
later going be caught by the fire). Disregarding the many arguments one could make for not jumping inside
the bus, the people accept the bus driver’s proposal. In Argentina the economic, political and social situation
was so dire, that people (i.e. Congress and the population) decided to trust Menem’s promises and embark in
actions that, in a normal context, they would have never accepted to do.
26
advance, and the UCR compromised to give legislative support to the new
administration.27
Furthermore, during the first months of his administration, Congress delegated to the
Executive vast legislative powers through the Ley 23.696 de Emergencia Económica and
the Ley 23.697 de Reforma del Estado. The first of these laws dismantled the main
institutions related to the state-centered, inward looking development model: subsidies,
industrial promotion regimes, etc. The second law conferred vast powers on the executive
to define the details of the reform policies, including the privatization of state owned
enterprises.28
In sum, the partisan distribution of institutional power coupled with the delegation
mechanisms at the initiation of his mandate provided for a high concentration of partisan
power in key institutions on behalf of the Menem administration. Yet, this did not
completely numb relevant political and institutional actors, which recuperated voice in the
context of stability.
c. The Political/Institutional Administration of Reform
Contrary to what most of the literature on the political economy of reforms in Argentina
asserts29 we contend that the economic reform process was not carried out by an Executive
power in isolation of social, political and institutional actors. Rather, we argue that reforms
were the product of a series of transactions between the Executive power and some key
actors (mostly within the governing coalition) at every step of the process.
27
Because Menem’s taking office was not accompanied by the renewal of the legislative chambers, and at
this time the UCR held a majority in the Deputy’s Chamber, the UCR compromised legislative support to the
Executive in the form of quorum. Article 64 of the Argentine Constitution establishes that, in order to be able
to start a legislative session, there has to be an absolute majority of the members of the Chamber present.
Nevertheless, the internal regulations of Congress establish that if 50%+1 of the members are present,
sessions can be initiated. This regulation is known as the quorum requirements, both to initiate and vote on a
legislative project. This regulation provides an instrument to Congress to block the treatment of certain laws.
This is frequently used by both officialist and opposition members. In this agreement, the UCR compromised
to give quorum, to enable the discussion over bills sent by the President.
28
Consequently, Congress was left aside of the definition of the details of each particular privatization.
29
Great part of the literature on the political economy of reforms in Argentina associate the successful
implementation of economic reforms with the presence of an all-powerful Executive who acts in isolation
from the other political and societal interests. One of the major exponents of which is O’Donnell’s (1994)
“ delegative democracy” .
27
In the appendix we sketch the beginnings of a model that could account for the
characteristics of the political implementation of the reform process. In this section we
intend to present the political and social actors with relevance throughout the process, that
is, we address the following question: who did the executive have to ‘buy’ in order to
advance in the reformist course?
The Party
The first actor we look into is the governing party. There are two fundamental reasons for
this. One, that even the reformist executive has major concerns on his electoral fate in the
future, which relies on the party structure. Two, that the partisan distribution of
institutional power during the Menem administration renders the PJ with high leverage on
the legislative process.
In the context of a favorable partisan distribution of institutional power, the party becomes
one of the fundamental veto players at the time of implementing reforms.30 It is in the
relationship between party in government and the government, that both the conditions for
the reforms were generated and the content of the reforms defined (Corrales, 1999). At this
point, Menem’s political credentials (i.e. the fact that he was a peronist) had a double
effect. On the one hand, it generated a major disruption, in as much as the policies he was
propounded constituted a dramatic break with the populist policies peronism traditionally
embodied. This break generated resistance and criticism on behalf of the party, yet both the
intellectual efforts devoted to the ‘rebuilding’ of the peronist identity as well as the
‘buying’ of support helped moderate these tensions. On the other hand, it was on behalf of
his ‘political credentials’ that Menem was able to generate the acquiescence and force the
support of the popular sectors related to Peronism. The literature refers to this as the
‘Nixon goes to China’ effect.31 In order to neutralize these resistance and generate the
support of the party, that the government had to enact a series of ‘concessions’.
The discrepancies between the government and the Peronist legislators clearly illustrates
the effects of Menem’s ‘conversion’ to neoliberal policies. Two schisms occurred in the
30
It is important to note at this point that Menem arrives to the presidency with a high degree of autonomy
from his party since he was elected candidate for the PJ in open primaries in 1988, for the first time in the
history of peronism.
28
peronist block in the Deputy’s Chamber: the Grupo de los Ocho and Afirmación
Peronista.32 Furthermore, and in contrast to the vision of an insulated Executive power,
between 1992 and 1994 around 46% of the legislative initiatives of the presidency were
modified by Congress (Figure 14).
Figure 14
Ammendments to Presidential Legislative Initiative, 1992-1994
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Laws initiated by the President and moddified by Congress
Laws initiated by the President and moddified by Congress (excluding
treaties)
Source: Molinelli, Palanza and Sin (1999)
The Executive managed to tackle these discrepancies through three strategies. The first,
was the frequent use of Decretos de Necesidad y Urgencia and vetoes on the bills
approved by Congress. This strategy, a direct consequence of a high concentration of
power in the Executive, spared Menem the cost of negotiating support in the legislature.
The second, was through political transactions with provincial and small parties. The third,
31
On the ‘Nixon-goes to China’ effect see Cukierman and Tommasi (1998a) and (1998b).
Grupo de los Ocho is the name given to a group of eight peronist deputies which, in disagreement with the
reform policies decided too form a separate block. This includes some very salient politicians like Chacho
Alvarez who became one of the leaders of Frepaso. It is interesting to notice that 7 of the 8 deputies were
from Capital Federal or from the Province of Buenos Aires, the two largest electoral districts. Afirmación
Peronista was composed of three deputies.
32
29
as shown in Figure 14 and further analyzed in the next section, involved making
concessions in policy design.
When referring to the peronist party as a fundamental political actor, we are basically
concerned with the two major constituencies of which this party is composed of: the
provinces and the unions.
-
Provinces
The peronist machinery in the provinces constitute another of the fundamental electoral
pillars of Peronism. Furthermore, Argentine federalism confers a high degree of political
and institutional power to the provinces, especially as an actor in the national arena.33 In
this sense, it is possible to trace, throughout the reform period, a strong reformist impetus
in the national level which contrasts with the scarce advances in the provincial levels.
Gibson and Calvo (1997) prove that the territorial organization of the electoral coalition –
to the extent that the special treatment of the interests of the poor and under-populated
provinces generated the necessary support to sustain the reformist impulse- is a
fundamental aspect related to the successful implementation of reforms. Peronism
historically encompassed two distinctive and regionally-based coalitions: a “ metropolitan”
coalition which gave support to the parties’ development strategies, and a “ peripheral”
coalition which carried the burden of generating electoral majorities. The metropolitan
coalition is of very high economic importance, given the economic asymmetries across
regions in Argentina, but carries less political weight in Congress given the notable
malapportionment. Hence Menem decided to have the metropolitan coalition shoulder the
full blow of the adjustment costs, while he speared the peripheral coalition through several
concessions in tax benefits (Eaton, 1996) and by allowing the subsistence of interventionist
and populist enclaves.
-
Unions
The Argentine labor movement has been and is one of the most important bastions of the
peronist movement. During his tenure as Secretary of Labor in 1944, Perón forged the
33
It has been very common during the 10 years of Menem’s presidency, that many major laws and policies
where first discussed by the member of the Executive with provincial governments, before sending the
project to Congress. See Spiller and Tommasi (1999) and Iaryczower, Saiegh and Tommasi (1999) for more
details on the role of provincial governors on national politics.
30
political support of labor organizations through the granting of social benefits to the
workers and the enactment of regulations fostering the organization and growth of the
unions. In this manner, and under the auspices of privileged access to public power, the
labor movement developed into an important social actor. Later, Perón gave political
expression to organized labor -which became one of the fundamental pillars upon which he
launched his political career- at the time that he furthered the supply of state favors to this
constituency. To date, unions remain one of the fundamental sources of the electoral
majorities of peronism.34
The restructuring of the populist metropolitan coalition involved picking winners and
losers both within the business community (see next section) and within the labor
movement. In part the success of the reform process involved the division of the labor
movement and the co-optation of certain sectors to prevent unified labor opposition to
economic reform. Menem’s credentials also proved to be an asset during the
implementation of this strategy.
Menem’s deepened the divisions inside the unions, precipitating a fracture in 1989 that
diminished their bargaining power. The policy succeeded through the administration of
“ carrots and sticks” . The unions which supported the reformist course received
concessions, while the opposing unions were punished.35 In parallel, Menem propitiated
the incorporation of the unions in the reformist elite via the generation of “new economic
businesses” , and through the rewarding of some leaders with government positions
(Murillo, 1997).
The unions’ support of reform is evident by the decrease in their activism from the levels
reached during the Alfonsín administration. The government gained such support by
concessions in the form of protection for the sources of the union’s institutional power: the
regulation of collective bargaining and “ obras sociales” ; this in spite of the constant
decrease in the union’s representations in the legislature. Table 7 shows the decrease in the
34
On the relationship between peronism and the labor unions see Collier and Collier (1979), Torre (1990)
and Torre (1995).
35
An example of Menem’s harshness towards the unions is his issuing of a decree on the 17 of October 1990
(symbolic date for peronism) limiting the right to strike. Furthermore, when necessary, Menem retained the
funds of the unions.
31
amount of deputies with ties to unions since 1983 to the present.36 Figure 15 shows the
decrease in the amount of general strikes during the Menem administration, especially
compared with the Alfonsín administration.37 Furthermore, there is a decrease in the
average number of people participating in each strike, as well as a difference in the issues
raised in each strike. During Alfonsín’s presidency (1983-1989) the protests were mainly
related to the wage levels, whereas during Menem’s presidency, they were principally,
related to the labor policy and unemployment.
Table 7
Deputies with ties to Unions
Syndicalist
Deputies
Total % of the
Lower Chamber
1983-85 1985-87 1987-89 1989-91 1991-93 1993-95 1995-97 1
9
9
7
9
9
35
28
26
23
18
10
16
1
4
13.80% 11.00% 10.20% 9.00%
7.10%
3.90%
6.20% 5
.
4
0
%
Source: Centro de Estudios de Unión para la Nueva Mayoría
36
Though they concentrated in the Labor legislation committee (Etchemendy and Palermo, 1997).
Figure 15 shows a characterization of the general strikes between 1983 and 1997, according to: amount of
strikes in each presidential period, objectives of the strike, and degree of mobilization. In what refers to the
objectives of each strike, one should note that there has been more than one objective in each strike, and
therefore, the total number of themes is larger than the number of strikes. The figures show the amount of
times each objective has been mentioned. The data on mobilization show the total amount of people
mobilized.
37
32
Figure 15: General Strikes, Quantity, Subject and Degree of Union
Mobilization during the Alfonsin and Menem administrations
14
45
12
40
35
10
30
8
25
6
20
15
4
10
2
5
0
0
Alfons í n
Menem I
Menem II
Economic Policy
Wages
Others
Unemployment
Labour Policy
Mobilization (RHS)
S ource: Centro de Estudios Unión paralaNuevaMayorí a(1999)
The critical economic situation in which Menem initiated his mandate, conferred domestic
economic groups with high leverage over the government. In a frail fiscal situation, the
responses of economic actors to government economic policies can determine their success
or failure. Menem’s political credentials, of fundamental importance to force the support of
his party, generated distrust in key economic actors, both at the national and international
level. This lead the Menem administration to ‘overact’ in order to signal that he was going
to change policy and make the reformist intentions credible.38 In addition to the
Convertibility law, other signals were transmitted through the rapid privatization of
national symbols like airlines and telephone companies, the invitation extended to the most
powerful economic groups, which historically opposed peronism, to join the government,
and the alignment of foreign policy to U.S. interests.
-
Economic groups
Menem consequently included in his government coalition a select and powerful group of
the business sector. Rather than addressing the organizations of the business sector –as
Alfonsín had unsuccessfully done-, Menem established a close relationship with one
particular group: Bunge & Born39, which, in turn, became the interlocutor of the
38
On signaling to show compromise with economic reforms see Rodrik (1989) and Tommasi and Velasco
(1996).
39
Bunge & Born was, in the peronist imaginary, symbol of the oppression of labor.
33
government with the sector. As Acuña (1995) assertively points out, this strategy
disoriented the “capitanes de la industria” 40 as an organized collective actor.
The Menem administration faced a double dilemma in its relationship with the business
sectors. On the one hand, it is logical that the industrial sector would be reluctant to
support trade liberalization policies, since they would generate competition from
international products. On the other hand, privatization policies implied a cost to many of
the businesses who were state suppliers. While the former lacked the capability to organize
collective action against the government’s policies, especially because decisions on trade
barriers remained under political considerations,41 the government placed strong incentives
for the groups to negotiate particular solutions to each particular sector (Viguera, 1999).
The potential reactions of the latter, which were threatened by the possibility of losing the
contracts with the state, were neutralized by the propitiation of their participation in the
public enterprises privatizations. Even though not every one of the state providers
benefited from the privatization process, those left out did not constitute a sufficiently
important group capable of obstructing the reformist course. Table 8 shows the
beneficiaries of the privatizations.
Table 8
Beneficiaries from Privatizations
Domestic Economic Groups
Pérez Companc
Participation in the Privatizations
Northern zone of Entel (Telecom consortium such as Cía.
Nav. Pérez Companc)
Southern zone of ENTel (Telefonica de Argentina consortium
through Inversiones Catalina and Banco Río)
YPF: central areas Puesto Hernandez and Santa Cruz II
40.5% of Edesur
Concession of national roads
YPF: 10 marginal areas
12.5% of Central Costanera from ex –Segba (electric
generation company)
Campo Durán Distillery (40% of the winner consortium)
Transportadora Gas del Sur (Gas transportation company)
Distribuidora de Gas Metropolitana (25% of the winner
consortium)
Allen-Puerto Rosales Oil Pipeline
40
Capitanes de la Industria is the name given to the economic groups which grew as state suppliers.
Because, as Viguera (1999) assertively points out, rather than isolating trade policy from political pressures
(as was the case with monetary policy and the Central Bank) the government kept these decisions in the
scope of the Ministry of Economy, with which each sector, in a non-cooperative manner, lobbied for
favorable treatment.
41
34
Techint
Pescarmona
Bridas
Bunge & Born
Loma Negra
Acindar
Benito Roggio
ASTRA
Comercial del Plata
Branch line Rosario-Bahía Blanca (integrating Ferroexpreso
Pampeano S.A.)
Central area El Tordillo from YPF
10 marginal areas from YPF
National road concession (100% of Caminos del Oeste)
Southern zone of ENTel (participates in the consortium of
Telefónica de Argentina)
80% of Somisa (now Aceros Paraná S.A.)
La Plata electricity company (Edelap)
Central area of Arargüe (45.5% of the winner consortium)
Transportadora Gas del Norte (Gas transportation company)
Allen-Puerto Rosales Oil Pipeline
Austral (it has sold its participation)
Aerolíneas Argentinas (it has sold its participation)
Urquiza and San Martín cargo railroads
Central area from YPF in Tierra del Fuego
Marginal areas from YPF: Estación Fernandez Oro
Marginal areas from YPF: Cerro Vagón
Two contracts with YPF for the exploitation “Pampa del
Infierno” area
Allen-Puerto Rosales Oil Pipeline
Petroquímica Río III (part of the shareholder capital)
Atanor (part of the shareholder capital)
Distribuidora Gas Pampeana (Gas Distribution Company)
Distribuidora Gas del Sur (Gas Distribution Company)
Ferrocarril Roca (65% of the consortium Ferrosur)
Ferrocarril Roca (10% of the consortium Ferrosur)
Segba: Pedro de Mendoza plant
Distribuidora Gas Metropolitana (through Invertrad)
National road concession: Convisur
National road concession: center road network
Urban branch line of the railroad Mitre
National road concession: Acceso Oeste
Northern zone of Segba (40% from the consortium Edenor)
YPF: areas of La Ventana, Central Vizcacheras, Santa Cruz II
and Río Turbio
Campo Durán Distillery (15% of the winner consortium)
Allen-Puerto Rosales Oil Pipeline
Telefé (14%) (TV channel)
Termoeletric plant Güemes (25% of the consortium Powerco)
Branch line of the railroad Rosario-Bahía Blanca (29% of the
consortium Ferroexpreso Pampeano) y branch line of the
railroad Delta Borges
YPF: Austral Basin Santa Cruz I (34%)
ENTel: Telefónica Argentina (5%)
Puerto Madero (87%)
Central area Palmar Largo (25.5% of the winner consortium)
Transportadora Gas del Norte
National Water Services (Obras Sanitarias de la Nación) (23%
of the winner consortium)
Distribuidora
Gas Buenos Aires Norte (Gas distribution
company)
Dock Sud Distillery
35
CITI
SOCMA
ENTel: Telefónica de Argentina (12.1%)
Altos Hornos Zapla
Cold storage plant Santa Elena
Llao Llao Hotel (44%)
Transportadora Gas del Sur (Gas transportation company)
Concession of national roads
Obras Sanitarias de Corrientes
Distribuidora Gas del Centro (through Sideco, Gas distribution
company)
Distribuidora Gas de Cuyana (through Sideco, Gas distribution
company)
National concession road: Acceso Norte
Source: Gerchunoff y Cánovas (1994)
In sum, the support of the main constituencies of the Peronist Party (which ensured both
the prevalence of his will in the decision making process, as well as his electoral support)
and of the main economic groups (which ensured the economic viability of the reforms)
rendered the economic reforms possible. Yet, this support came at a cost. It was these
actors who imposed constraints and left an imprint on the reformist course. As we have
noted before, the Executive had to negotiate this support throughout. This, coupled with
the fact that the political coalition of support contained diverging interests rendered the
reform process a complex combination of signaling and concessions to many of these
actors. Lets turn to the implications of this coalition on the results of the reform process.
4. Outcomes
We have argued that the political and institutional factors associated to the formation and
maintenance of the pro-reform coalition have left a strong imprint on the outcomes of the
economic reform process. More specifically, and in the light of our ‘vote buying theory’,
described in the appendix, the negotiation process which enabled the effective
implementation of a package of reforms, determined both the pace and depth of the
reforms in each area, as well as the persistence and protection of ‘illiberal enclaves’. We
contend that this influence can be mapped both into the timing and sequencing, as well as
in the design of reforms.
In the last section we have argued about the influence of the peronist party and the
economic actors on the reform process. In this section we present some evidence which
36
sheds light on the main features of the political negotiation of economic reforms in
Argentina.42
In this manner, while privatization, fiscal reform and liberalization of most internal and
external markets was accomplished in a rather rapid and successful manner, the advances
in other areas, such as labor market reform and provincial reforms has been less
significant. Furthermore, the reformist efforts in these directions seem to have been
delayed during the first two stages of the reformist process. Whereas the Menem
administration initiated cold turkey reforms in monetary policy, trade liberalization and
privatization of state owned enterprises, efforts in labor market reforms43 and provincial
government reforms, while present in the government’s discourse44, were approached in a
more gradualist and negotiated manner. In 1995 the Minister of Labor asserted that
between 1989 and 1995 only 30% of labor market liberalization was achieved
(Etchemendy and Palermo, 1997), and the impetus of the National government in the
reform of provincial governments was practically nil until the 1993 Fiscal Pact.
Furthermore, neither the labor market reform nor the provincial reforms were bundled as
part of the stabilization program.
During the Menem administration, labor market reform was tarnished with ambiguity. The
legislation on this policy area during the period not only did not suffice to dismantle the
protectionist system of the past, but it also reveals a rather erratic course.45 While some of
the laws constitute moves towards a more liberalized system, others seem to reinforce the
illiberal tone of the regulations in this market. In any case, major advances in the policy
area have been achieved in the 1994-1995 period under the framework of the Acuerdo
Marco para el Empleo, la Productividad y la Equidad Social in which the government, the
unions and the business sector agreed –in a corporatist manner- upon the general lines of
42
The evidence presented in this section is far from being a systematic study of the issue, yet it gives
meaning to the hypothesis we present in this paper.
43
Regarding the reform of the labor market, it should be noted that the Ley de Emergencia Económica –of
fundamental relevance to the reform process as a whole- includes an article by which the maximum for
severance pay is even augmented. In this manner, this law which embodies much of the reformist impetus of
the government, is tainted with the protection of regulations which lie at odds with the Washington
Consensus agenda.
44
An argument could be made for the use of signaling in this policy areas, as part of the executive’s strategy
to hold together a rather unstable political coalition. Yet, this is not more than a speculation.
45
For a study on the process of labor reform see Etchemendy and Palermo (1997), Acuña and Tuozzo (1998),
Torre and Gerchunoff (1998) and Palermo (1998).
37
the bills to be approved by Congress46 (Etchemendy and Palermo, 1997). Moreover, the
limited liberalization of the regulations regarding working relations has enabled the
persistence of the institutions from which the unions derive economic and political power:
the collective bargaining and obras sociales.47 48
Regarding provincial reforms, specially during the initial phases of the reformist process,
reforms were spared in the periphery provinces, enabling the government to maintain
support while inflicting the costs of adjustment in the more urban locations. Stabilization in
1991 rendered all provinces an increase in the amount of transfers received according to
the fixed coefficients of distribution determined in the Copartipación Federal de
Impuestos (tax-revenue sharing agreement). This not only reduced the incentives for
reform faced by provincial governments, but also countered the effect of the fact that
Central Bank independence eliminated the possibility that the central government monetize
the debts of provincial banks. Concessions were noticeable in tax reform , were several
special regional privileges were maintained (the negotiations are analyzed in Eaton, 1996).
In 1992, a Fiduciary Fund was created (with financial aid from the IMF) to finance
provincial bank debts in order to foster their privatization. Later in the process there have
been some partial efforts of fiscal reform and privatization in the provinces, through some
“ Fiscal Pacts” which included concession by the National government, such as absorbing
provincial social security and its liabilities.
The Tequila effect gave impetus to the
privatization of provincial banks. Overall, the progress in reform at the provincial level
has been slow, uneven and incomplete (see Nicolini et al 1999, Remmer and Wibbels
1998, and World Bank 1996).
More generally, the design of the policies by which successful reforms were enacted
reveals a special treatment regarding the interests of those groups whose support was
fundamental for the administration in office. The privatization49 process involved
46
As part of this agreement, the unions were granted a $21.000.000 concession to make up for the fall in
revenue produced by the reduction in employers contributions since 1994, a special agreement for gradual
cancelation of the debt that the obras sociales had with the tax collecting agency, as well as the creation of a
special commission composed of members of the Labor and Economy Ministries and representatives of the
CGT entitled to negotiate reforms in this area.
47
For an account on the process of reform in the obras sociales see Montoya and Colina (1998).
48
A few months before leaving office, Menem has initiated negotiations with the unions and there is rumors
of the approval of a Decree by which the leverage of unions on the administration of the redistribution funds
of obras sociales would be increased (La Nación, 17/10/99).
49
On the privatizations process in Argentina see Abdala (1998), Llanos (1998) and Murillo (1999).
38
Programas de Propiedad Participada (PPP), which consisted in distributing shares to the
workers, as well as generous voluntary retirement programs. Moreover, unions were
allowed to participate in the privatization process, which opened new business possibilities
for them (Murillo, 1997). On the other hand, provincial governments were allowed to
participate in the privatization process of those enterprises which affected their economies.
Moreover, in the privatization of YPF the Executive was forced to compromise for the
transfer of the property of hydrocarbons to the provinces as well as to cancel a long dated
debt that the Nation had with the provinces regarding royalties for gas and oil (Llanos,
1998). The design of the privatizations, as well as the regulation of public utilities, reported
important benefits for the new owners of these services, such as monopolistic rents or
cheap prices. This had the double impact of fostering the support of the economic groups
for the reformist course as well as accelerating the process in order to solve the state’s
fiscal crisis especially during the first stage of the reform process. Trade liberalization50
contains special exemptions which lie at odds with the uniform and strict pattern imposed
at the of Cavallo’s appointment to the Economic Ministry. These concessions, as in the
case of automobiles and paper products, are associated with the ties that each sector was
able to develop with the government.
The “ trades” described above help illustrate the main argument of this paper: political
support for economic reforms has a cost, which can be expressed in concessions either in
policy design, sequencing and timing, but also result in the persistence of illiberal enclaves.
This has further implications both for the political economy of reforms in general, as well
as for the Argentine case in particular. We deal with this implications in the next section.
5. Conclusions
The main conclusion of the paper is that politics and political institutions matter for
economic reform outcomes. This is not totally novel, but it departs from the most standard
political economy approaches to reform from the Economics literature (as reflected, for
instance in the collection of Sturzenegger and Tommasi, 1998), and shares the spirit of the
more micro-analytical approaches to the nature of contracts advocated in the industrial
organization literature by Oliver Williamson (1985).
50
For an account on the trade liberalization process which starts during the Alfonsín (1983-1989) see
Viguera (1999).
39
In order to better understand economic policy reform outcomes in each country, it is
necessary to look into the details of its polity. Menem was able to undertake such a
remarkable transformation, not only due to the usual statements of “ visionary leadership” ,
“ unconstrained decision making” and “coherent economic team” (Williamson and
Haggard, 1994), but through a series of concessions in terms of content, timing,
sequencing, and signaling. The nature of these political exchanges were, in turn,
profoundly conditioned by the distribution of institutional power at the time, as well as by
the more general rules of the political game in Argentina.
For economists who want to understand what happened, and who, furthermore, want to be
able to advocate further welfare improving policy reforms and the sustainability of the
ones already done well, it is crucial to delve into the details of how the political game is
played.
One more specific conclusion from the Argentine case is that it is not just “ politics”, but
political institutions that matter. Congress was, contrary to some conventional wisdom, an
important institutional actor shaping the reform process. Furthermore, the actions of
congressmen were affected by their overall set of political incentives and resources. Hence,
the determinants of those incentives and resources, such as the electoral system and the
degree of geographical malapportionment, are important variables in explaining the overall
“ success” of the broad strokes of the reform agenda, as well as the details of
implementation (or non-implementation) of reform in each specific area of policy.
Studying the impact of the rules of the political game on policy outcomes is, in the end, the
core of Political Economy. The ultimate goal should be, on the basis of such study, to be
able to come up for suggestions of truly institutional reforms that might improve the ability
of political actors to realize political exchanges leading to more efficient policy outcomes.
40
Appendix
A Tentative Framework: A Vote Buying Theory
The rules governing the decision making in presidential systems establish different
requirements for the making of public policy in different areas.51 Whereas the Executive
power has –or can have- discretion in some policy areas, there are others which require
agreement between the Executive and the Legislative branches of government. 52 This is
the case for many of the structural reforms which we are concerned with in this paper.
Therefore, one of the major challenges faced by reformist Executives is the formation of
Legislative majorities. This challenge appears as a dynamic process, since Legislative
majorities must be forged at different moments in time.
The institutional division of powers in which the checks and balances system is embodied
generate different incentives for the executive and legislative powers53, which, in turn, may
be conflicting. This conflict is resolved through political negotiation.54 Therefore
production of Legislative majorities is subject to negotiation for each and every one of the
Legislative initiatives of the President.55
The political science literature has frequently looked into the party system as a feature
which either exacerbates or attenuates the levels of conflict between these two powers. It
has frequently been argued that levels of conflict should diminish in cases of ‘united
51
It is important to note that, for certain cases this definition is more taxative than for others. In what
concerns economic policies, it is clear that whereas trade barriers are decided in the Executive, other policies,
such as privatization, are to be defined by Congress.
52
Regarding the case of Argentina, we should note that throughout the years the Executive has managed to
concentrate wide discretionary powers (among which are the Decretos de Necesidad y Urgencia, etc.), yet
this concentration of power has not resulted in the exclusion of Congress as a fundamental actor in the
decision making process. Furthermore, it should be noted that the context in which the decision are made
affects the degree to which the Executive can restrict the locus of the decision making to his scope. While
during the crisis of 1989 the Executive was able to generate ‘delegation’ patterns, the context of stability
since 1991 has furthered the participation of Congress.
53
At play is the territorial organization of the polity, as well as the attributions of the different branches of
government and the electoral and party laws.
54
With which logrolling and pork barreling are associated.
55
Underlying this affirmation is the recognition that each policy area contains its own distributive conflict
(and therefore each political actor has a particular policy preference regarding each policy area). Even though
this distributive conflict may be similar in different policy areas, it should not be assumed that it is common
to every area. Furthermore, it is necessary to see this as a dynamic process along which contextual factors
affect the policy preferences of the actors at different points in time.
41
government’ when there is a low fragmentation of the party system (i.e. small number of
parties) and high levels of party discipline.
This conceptualization seems rather vague and general and ignores important aspects of the
policy making process in democratic politics.
Our approach to the issue of the formation of Legislative majorities is a vote buying
theory. We reference to the case of Argentina, but note that there is a strong possibility of
generalization in a more formal theorization.
The basic contention is that in an institutional system based on the division of powers,
Legislative support for Executive’s initiatives must be “ bought” at every step (i.e. for every
bill that the Executive wants to enact). Consequently, each and every one of the bills for
which the Executive is able to forge Legislative support, is associated with a “ price” , even
in the case of a favorable partisan composition of Congress.56 Furthermore, we propound a
more formal conceptualization of ‘party discipline’, according to which the composition of
the price paid for the support of legislators varies between legislators of the party in
government and those in the opposition. In essence, the argument is that when the
legislators who the Executive intends to buy are of its own party the price can have both a
‘spot’ and a ‘structural’ component. The latter being future benefits in terms of political
career inside the party.
Looking into the Argentine reform process from this standpoint allows us to identify the
concessions that the reformist Executive had to make in order to ensure the successful
adoption of his initiatives. We argue that it is these concessions which lie at the roots of a
series of ‘illiberal’ enclaves in the reformist course, whose protection was fundamental to
the successful enactment of reforms in other policy areas. We can therefore identify
throughout the reformist process, a series of “ trades” which embody and contain the
negotiations leading to the adoption of major reforms in some of the economic policy
areas. Lets look into the details of the general argument for “ vote buying”.
56
As we will argue later, the difference in the partisan orientation of each legislator results in either a
different price, or else in a different composition of the price (i.e. the Executive can “ buy” the support of the
legislators of his own party through ‘political career’).
42
Vote Buying
Approaching Executive-Legislative relations in the reform process from a vote buying
perspective renders the “ price” at which the Legislative support is bought a fundamental
issue.
Three variables affect this relation. First, the majorities required to approve legislation.
Second, the means by which the Executive can pay for support in the legislature. Third,
and closely linked to the second issue, is the partisan composition of the Chamber. These
variables affect both the price each legislator will charge the Executive as well as the price
the Executive is willing to pay.
First, majorities required determine the amount of support needed, and therefore the
amount of legislators to “ buy” (typically 50% + 1, but it may vary on different issues). We
are therefore concerned with the behavior of only this many legislators, rather than of the
Chamber as a whole.
Secondly, there are several ways by which the Executive can pay for votes in Congress:
-
Policy: the Executive can accept amendments to his original project, support another
law or offer concessions on regulations which are decided by the Executive -i.e.
discretionary transfers to the provinces, etc.
-
Political career: future benefits within the party structure if the legislator belongs to the
party or political appointment if the legislator does not
-
Corruption
Regarding the issue of reforms, we can trace a distinction between those transactions
which inflict variations on the policy course and those that do not. Therefore, when
negotiations with the legislature involve concessions in policy, it is likely that the reform
agenda will be altered. Consequently, the possibility of altering the reformist course
diminishes when negotiating with party members. Another interesting point related to the
political economy of reforms in Argentina is that since 1991, monetary policy has imposed
43
serious restrictions on government expenditures. This further reduces the instruments with
which the Executive can forge support in the legislature (Spiller, 1999).
Thirdly, the partisan composition of the Chamber determines both the composition and
level of the price each legislator will ‘charge’ as well as the leverage of the different parties
in the negotiation process. We assume that the price for legislators belonging to the
government party is the only one which can be composed of both ‘spot’ and ‘structural’
price (political career).57 Furthermore, there are two issues which allegedly make it easier,
or cheaper, to buy support of partisan legislators. In the first place, intuition suggests that
the policy preferences of the members of the party are closer to the ones of the Executive,
and that there is less cost involved in making the commitment credible since they belong to
the same party (trust). In the second place, intuition suggests that buying non-party
members is more costly to the extent that the price the legislator charges has to include the
opportunity cost in terms of his career in his party. Also at play is the fact that in buying
non-party members’ support, the Executive must pay a ‘spot’ price. Of course there are
some qualifications required that relate to the relative size of the party, as well as to the
internal organization of the party (more specifically, regarding which are the actors that
affect the future career of the legislators, etc.).
The ‘model’
From this perspective, the relation between the Executive and Legislative power can be
seen as lying on a continuum between a point ‘A’, in which 50%+1 legislators are in
agreement with the policy the Executive wants to enact (this point represents cost zero to
the Executive)58 and a point ‘B’, in which at least 50% of the legislators are unwilling to
accept the legislation at any possible price, and therefore the bill will never be passed.59 In
between points A and B lie different possible combinations of distributions of the price
each of the legislators is willing to accept in exchange for their vote. If the Executive can
afford to pay the price that 50%+1 of the legislators charge on each vote, then the bill
should be approved.
57
This is of course subject to the restriction that the Executive in office has enough leverage in the party
structure regarding the career of the legislator.
58
This includes the possibility of ad hoc negotiations between the Executive and legislators during the
drafting of the bill.
59
There is an infinite price which the Executive cannot pay or the Executive lacks the instruments with
which to pay.
44
Vote Buying in Argentina: Economic Reforms between 1989 and 1998
During the Menem administration, Congress was composed of the two majoritarian
national parties in Argentina: the PJ and the UCR and a number of small national and
provincial parties. The Peronists had a relative majority in both Chambers throughout the
period. In the Senate they had more than a simple majority, whereas in the Deputy’s
Chamber they had nearly a simple majority throughout most of the period except for 19951997 period when they reached a simple majority. The second largest party was the radical
party, followed by a number of small parties each controlling a few seats.
This divergence between the incentives which operate in the Executive and Legislative
power make for different policy preferences between both branches of government,
exacerbated by the lack of benefits that the great majority of national public policy brings
to them. This is so in the case of the reformist agenda adopted by Menem. The coupling of
Argentine federalism with the electoral and party laws conveys great leverage to the
provincial leaders of the national party over the political career of national legislators
(Spiller and Tommasi, 1999). Consequently, the provincial leader of the national party
becomes a necessary mediator in the negotiations between the Executive and the
legislature in national public policy. This also has implications in the composition of the
price that the Executive will have to pay to generatesupport in the legislature. Since the
political career of the legislator is less subject to the national party leader (the Executive)
than to the provincial leader of the national party, the price will have a higher ‘spot’
component. Furthermore, the price paid will presumably be negotiated with the provincial
party leader (i.e. in arena that is not the Congress) and therefore report benefits to him/his
province. 60
The fact that the reformist agenda adopted by Menem lies at odds with the traditional
policy preferences of Peronism, and that some of the items in this agenda imposed heavy
costs on the Peronist constituency generated more divergence between the two branches of
government. This resulted in an increase in the price that even partisan legislators charged
60
The price of the vote might also be affected by the size of the province/electoral district. For reasons that
we speculate about in Spiller and Tommasi (1999), legislators from larger electoral districts are more likely
to “ migrate” in the future (sometimes to form new parties as in the case of the Grupo de los Ocho mentioned
before), which weakens somewhat the value of the intertemporal relationship and increases the spot price.
45
for their votes, but was countered by the fact that policy preferences of some provincial
parties (center-right) as well as some small national parties (namely, UCEDE) were closer
to the reformist agenda, and therefore the price of these legislators was lower.
Finally, it should be noted that whereas small parties in the legislature have strong
incentives to negotiate with the administration in office, the main opposition party is more
reluctant to cooperate (presumably because of different policy preferences, but also to
differentiate from the party in office).
The Legislative majority which supported most of Menem’s initiatives in the legislature
was composed of Peronist party members as well as provincial/small parties.
In sum, political negotiation in the form of ‘vote buying’ may either dilute or stall the
reform process, and can have greater or less impact on the reform process, depending on
the manner by which the Executive pays for the support. Furthermore, the dynamic
character of this process makes for an important instrument in the hands of the reformist
Executive: the timing and sequencing of the reforms according to the possibilities to forge
Legislative support for his initiatives. The argument could be further extended in a less
formal manner to other societal actors such as interest groups, be it the unions or business
actors, due to the leverage they had at the time of the launching of the stabilization
policies)whose support is fundamental for reforms.
46
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