The Appearance of Impropriety in Argentina

The appearance of impropriety in public life can be as damaging to a person’s reputation – and to a public’s trust – as impropriety itself.

That’s why newly-elected public officials in many countries are required by law – or tradition – to cede control of their investments to a blind trust, which oversees the investments during the officials’ time in office. This is what Canadian and U.S. leaders do when taking office.

Earlier this month Sebastian Pinera, Chile’s new president-elect, moved to sell a stake he owns in the Chilean airline LAN. The stake has been estimated to be worth $1.5 billion. Pinera had pledged during his campaign to sell it before taking office next month.

The pledge aimed to allay concern about a possible conflict of interest if Pinera were elected and had to make a decision affecting LAN or his investment in it.

Pinera’s move aims not only to avoid a conflict of interest, but also to avoid the mere appearance of one. Critics have charged that Pinera hasn’t moved fast enough, or ceded control of enough of his assets, to avoid all potential conflicts of interest.

But his move regarding LAN indicates that both he and the Chilean people recognize the value of avoiding conflicts of interest, even the mere appearance of them.

That recognition is something that hasn’t fully come to fruition here on the eastern side of the Andes.

In Argentina the appearance of impropriety – and related suspicions of corruption and abuse of power – are so vast and deeply embedded that distrust in the political system in general, and in the current government in particular, fosters a profound cynicism that permeates virtually all aspects of public life.

That cynicism has kept Argentina in the gutter in Transparency International’s global corruption index. As a colleague of mine wrote in an article last November:

“Argentina continues to rank among the world’s most corrupt countries due, in large part, to extensive executive powers and discretionary spending, according to Transparency International’s 2009 Corruption Perceptions Index. Argentina received an index rating of 2.9 out of 10 for the fourth straight year, putting it in 106th place among 180 countries in terms of transparency. The country is sandwiched between Zambia and Benin and ranks 23rd out of the 31 countries in the Americas. It is overshadowed by neighbors Chile and Uruguay, which both scored a respectable 6.7 points.”

Delia Ferreira Rubio, president of Poder Ciudadano, TI’s local representative, said the government’s effort to reform the judicial branch has opened it to criticism.

As my colleague noted:

“That may prove decisive as a number of courts investigate charges of corruption against government officials and (launch an investigation) into the sharp rise in the Kirchners’ personal wealth in recent years. ‘I don’t have a lot of confidence that the case regarding the investigation of the Presidential couple’s wealth will make it to the end,’ Rubio said.”

Indeed, in December a federal judge ended that investigation quickly, saying the First Couple had demonstrated that their remarkable increase in wealth since taking office was legal and justified. In 2008, the Kirchners’ declared wealth rose by 158% to 46 million pesos ($12 million), according to a copy of their declaration filed with the Anti-Corruption Office.

In early 2008, Kirchner sold a block of land for 6.3 million pesos. He had bought the land less than two years before for just 132,079 pesos.

In less than two years the property’s value jumped by about 4,670%.

Which is not to say that anything about the transaction was illegal.

I know of no evidence that implicates either former president Kirchner or his wife in illegal activity.

But in public life legal activity alone is not enough to quash questions about unethical conduct.

Even when proof of wrongdoing is absent – or nonexistent – suspicions about it can persist amid the mere appearance of impropriety.

Local media have reported widely about a financial investment firm allegedly started by the Kirchner family. They (and I) also have reported about a $2 million currency market transaction made by Kirchner in 2008. Kirchner, as he has acknowledged, bought $2 million worth of dollars in the exchange market in separate, smaller transactions on Oct. 9, 15 and 23 of 2008.

That was just days before his wife, Cristina, announced that she would nationalize $30 billion in private pension funds. As I wrote for Dow Jones at the time:

“That announcement, coupled with the meltdown in the U.S. of Lehman Brothers and the onset of the most acute stage of the global crisis, induced a sharp decline in the value of Argentine securities. The peso also depreciated sharply in the weeks and months following the announcement, making the dollar an excellent investment opportunity. Manuel Garrido, who once led the anti-corruption office, said the purchases should be investigated, but this is unlikely to happen. ‘The government has dismantled all of the institutions that oversee and control this kind of thing, so it’s unlikely there will ever be a serious investigation,’ Garrido said.”

Critics say Kirchner was likely privy to inside information about plans to nationalize the pension funds. He had to have known, they say, that the peso would likely weaken in the days following his transaction. After all, it is widely believed that Kirchner is Argentina’s de facto economy minister. As such, he would not only have known about the pension fun plans, but may well have designed the nationalization plan himself.

Kirchner said he made no money on the transaction. He used the cash to help buy a hotel.

However, the relevant public service and corruption laws apply only to people in formal positions of power, said Garrido. Since Kirchner was technically not a government official, the laws don’t apply to him. As I quoted Garrido saying:

“The law that prevents this abuse of power assumes that the person who uses that information is a government official with access to restricted information,” Garrido said. “But Kirchner was not a government official in 2008. That makes this whole situation very peculiar because everyone knows that, informally, Kirchner was managing the economy during this period. But he was doing so without an official position in the government.”

This is not to say that Kirchner did anything illegal. Indeed, by most accounts, Kirchner acted within the letter of the law.

In any case, what matters for our purposes here is neither the legality nor the morality of the First Couple’s financial transactions. What stands out, rather, is that the Kirchners apparently fail to recognize that even the suspicion of wrongdoing has exacerbated an already damaging degree of cynicism about politicians and public life.

The First Couple’s approval ratings now hover at or below 20%, remarkably low considering the economy has boomed six out of the last seven years.

It may be that the mere appearance of impropriety has something to do with this.

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