Today's date:
Fall 2006

Argentina : Weak Institutions Keep a Good Country Down

Abraham Lowenthal, the founding president of the Pacific Council, recently completed a trip through Latin America with his wife and fellow scholar, Jane Jaquette. These informal notes are based on that trip.

Buenos Aires — Argentina is a country of compelling attractions and profound disappointments, of historic accomplishment and long-term decline, of many talented and educated people yet deteriorating human resources, of proud history but recurrent crises. It is a country of disconcerting contradictions and paradoxes, forcing one to think harder about comparative history, concepts and causalities.

The Coyuntura | The celebrations on May 29, which is a national day in Argentina and the third anniversary of President Néstor Kirchner’s inauguration, were widely perceived as the unofficial launch of Kirchner’s as yet unannounced re-election campaign. A handful of Argentine military officers took the occasion to organize a ceremony honoring the memory of military and police officials killed by the leftist guerrillas in the 1970s, a gesture calculated to challenge Kirchner.

The president responded with a strident statement condemning this ceremony and strongly repudiating the military’s “dirty war” of the 1970s and its former leadership. Already in March, on the anniversary of the 1976 coup, Kirchner had gone to the National War College to denounce the state terrorism of the 1970s, the adoption of a “neoliberal” economic model with “terrible consequences” and the continuing impunity for those responsible for both these tendencies.

In June, President Kirchner and Defense Minister Nilda Garré announced long-postponed regulations to implement in detail the steps needed to assure civilian control of the armed forces, putting into full effect for the first time several laws adopted under President Raúl Alfonsín in the mid-1980s. Kirchner’s attack on the military regime, his solidarity with victims of human rights violations and his insistence on reinstituting and reinvigorating legal processes in order to assign responsibilities and mete out punishment may well be sincere, but they are also an important aspect of his appeal to part of his current constituency, which includes many of those who were in the left during the 1970s. (The contrast between this approach and that of Chile’s President Michelle Bachelet, herself a victim of military imprisonment and torture, couldn’t be more different: She courts reconciliation with the armed forces.)

A second aspect of the current historic juncture, or coyuntura, was the escalation of tensions between Argentina and two of its neighbors: Argentina’s pursuit in The Hague of a (weak) legal case against Uruguay because of the paper plants being built on its side of the border with Argentina (allegedly a source of harmful environmental contamination) and its decision to reduce the export of gas to Chile below previously contracted levels and to insist on major price increases not contemplated in the contracts, in effect passing on to Chile increases in the cost of imported gas from Bolivia in order to keep domestic price low in Argentina.

Third, within a few days of our arrival in May, apparent trial balloons were launched to test the possible presidential candidacy, in opposition to Kirchner (or perhaps of his wife, Senator Cristina Fernández de Kirchner), of Kirchner’s first finance minister, Roberto Lavagna, an experienced and well-regarded tecnico, without much partisan political experience, who is widely credited with the leadership role in engineering Argentina’s remarkable economic recovery since 2002. The mere speculation that Lavagna might contemplate a presidential candidacy unleashed immediate and apparently concerted attacks on Lavagna from various members of Kirchner’s entourage. These attacks actually seemed to lend plausibility to a pro-Lavagna movement, bringing together dissident Peronists, Radicals, Socialists and others disaffected by Kirchner’s permanently combative style and by his accumulation of growing power.

Kirchner has maintained a confrontational stance ever since taking power in 2003: after garnering 22% of the vote in a multi-candidate first round and then winning the presidency by default when former President Carlos Menem, facing sure defeat in the runoff though he had come in first in round one, dropped out of the race. Kirchner has, seriatim, attacked the “old politics,” opposition parties, the armed forces, the judiciary, the Catholic Church, journalists and the media, business leaders, privatized enterprises, the International Monetary Fund, the United States government and many others. This pose of constant attack, with shifting targets, was Kirchner’s trademark in his home province of Santa Cruz, Argentina’s least-populated state (its population is 200,000) in the remote south; once coming to Buenos Aires and the presidency, Kirchner has simply added more variety to his repertoire. Whatever the sources of Kirchner’s style, it has helped, together with economic recovery, to gain him broad popularity and high (though perhaps soft) approval ratings, ranging well above 60%. But it has also troubled some who have either come under attack or been intimidated, who worry about what Kirchner plans to do with his increasing power and/or are concerned that his approach will further weaken Argentina’s political institutions.

The 15-Year Perspective | What would one tell a twin sibling, asleep for the past 15 years and miraculously awakening today, about the major changes that have occurred over these years and the most important aspects that have remained unchanged?

Responding to this question was clearly a pleasure for our Brazilian and Chilean interlocutors, who enjoyed sharing their impressions of significant progress on many fronts, with some disappointments and some key remaining challenges. In Peru, most people found the question painful, as they struggled to make sense of 15 years that had led, by the time we visited, to an electoral showdown in June between a thoroughly discredited former president, who left office in 1990 with virtually no remaining support, and a deeply threatening “outsider,” mobilizing the resentment of the long-excluded indigenous population and others from the poorer strata—“a choice between cancer and AIDS,” as several put it.

In Argentina, by contrast, responses to our request for a 15-year perspective brought a rich variety of responses. Respondents often found the question an opportunity to escape from the syndrome of recurrent crises and to identify underlying trends, but we were struck by the degree to which interpretations of the recent past, of current conditions and of medium-term prospects are all highly contested in Argentina today.

A Tale of Woe | Many Argentines considered the past 15 years—and some say the last 50—to have been mostly disastrous. Argentina experienced two hyper-inflations, a hyper-devaluation, a crippling depression and a hyper-default on its international obligations. Much of Argentina’s large middle class—three of every 10—became impoverished during these years, with a huge growth in the share of the population living in poverty, from 16% before the crisis of 2001 to 56% at its worst in 2002, and still today at 38%. Unemployment greatly increased, rising from 6.9% in 1991 to 21.5% in 2002 and is still about 11%. A large informal economy, without legal rights and protections, masks even greater underemployment.

Inequities have worsened, meanwhile, as the privatizations and other economic reforms greatly benefited a few; in the mid-1970s, the richest 10% of Argentina’s population received 12 times the income of the poorest 10%, but that multiple had doubled by the beginning of the 21st century. The quality of Argentina’s human resources, once an enormous asset in a country which has had strong educational institutions for more than a century, has markedly declined, with underinvestment in education and major increases in secondary school dropouts. Many members of a generation of Argentines (those now between 30 and 40) were demoralized by the massive economic, social and political crises of 2001–2002, some to the point of emigration, others losing the will to strive.

Argentina has suffered a major deterioration of political institutions, the widespread devalorization of democracy and deep distrust of all major actors: the parties, the congress, the judiciary, the politicians. Violent crime and street crime have exploded, with attendant concern about the rule (or un-rule) of law. In the chaos of 2001–2002, Argentina had four presidents in less than a month, one of whom had to be helicoptered to safety. The national clamor “Que se vayan todos” (“Let’s get rid of them all”) captured a pervasive and profound national mood.

With regard to the economy, many of those who emphasized decline stressed the denationalization of business; only 35% of the firms with gross annual receipts of at least $30 million in Argentina are now owned by Argentine investors. Many of the erstwhile flagship companies in different sectors have been sold out to foreign investors. Those who run these companies in Argentina today are mostly hired managers, with no national vision or commitment.

Argentina’s state weakened considerably over these same years, first because of deliberate efforts to privatize and streamline but then also because of politization, instability and corruption, all of which worsened during the 1990s and contributed to the collapse of 2001. A country which had proud public institutions in the early 20th century and strong social programs in the 1940s and ’50s has seen both these deteriorate over several decades, and at an accelerating pace during the past 15 years.

Democratic accountability has been severely weakened. The Argentine congress has become more a rubber stamp, or at best an ineffective bystander, than a key legislative forum or an important balancer of power. Recent presidents, especially Carlos Menem in the 1990s and now Néstor Kirchner, have made extravagant use of unusual executive “decrees of necessity and urgency” in place of congressionally approved legislation. President Alfonsín used this procedure about once a year from 1983 to 1989; Menem used it more than 300 times (an average of 4.4 times a month from 1989 to 1999), more than 10 times the number of such measures in Argentina’s entire previous constitutional history, from 1853 to 1989. Kirchner has been using these decrees an average of 4.8 times a month since 2003. The congress is reportedly weaker today than at any time in Argentina’s constitutional experience. Members of congress, on average, serve for only one term, with fewer than 20% of incumbents reelected, compared with more than 80% in the US and 60% in contemporary Chile. They depend for campaign financing and political support on provincial leaders who have little interest in national policy or legislative institutions but use substantial resources to pursue local or personal goals.

Political fortunes and therefore state policies have been unstable. The Radical Party, which won the presidency in 1983 with 52% of the vote under Alfonsín, declined to 17% in 1995, regained power in 1999 in alliance with FREPASO, a leftist movement, and then collapsed after the crisis of 2001–2002. In the 2003 presidential election, FREPASO disappeared completely and the Radical Party (UCR) garnered less than 3% of the presidential vote. (UCR has rebounded a bit in some provinces, but is still far from a contender for two-party competition, and many of its provincial governors are being courted by Kirchner to switch allegiance). Leadership in the Peronist party (PJ), which has maintained a strong machinery and support base, has split and oscillated, with little discernible programmatic or policy continuity. Previous governments are demonized and those associated with them discredited, while new leaders are presented in nearly messianic terms.

Policy instability is staggering; since democracy was restored in Argentina in 1989, the country has averaged a new minister of economics and finance every two months, and the governors of the Central Bank have been changed every 15 months. In 20 years, Argentina had 25 secretaries of foreign trade! Even the judiciary has been subject to purges or reorganizations under virtually every recent presidency; the average tenure of supreme court judges in Argentina since 1960 has been less than four years, despite a constitutional “guarantee” of lifetime tenure; this compares with nine years in Chile and 13 years in the US.

Reasons for Optimism | Bleak narratives on Argentina’s recent history were not the only ones we heard, however. Even some of those who gave us largely negative accounts pointed out that there has been progress on a few fronts, while a few presented a generally positive picture of important gains, forged, admittedly, by adversity.

Argentina’s experience over the past twenty-five years has produced strong national consensus on elections as the only legitimate system of choosing national leadership; on keeping the armed forces out of power and out of politics; on protecting human rights and never again permitting torture, assassinations, kidnappings and “disappearances”; on social solidarity and the need for a basic safety net for all; on the broad outlines of macroeconomic policies, at least to the extent of excluding high inflation and being committed, therefore, to a fiscal surplus, to exchange rate flexibility and to export promotion; and on the broad outlines of external policy, with commitments, of historic significance, to peaceful relations with both Brazil and Chile and a bias, novel in 20th-century Argentina, toward positive relations with the US. These points of consensus amount to what one analyst calls a “Copernican revolution.”

A few people noted that although Argentina’s formal political institutions are weak, democratic accountability has in some ways been considerably strengthened during these years, as the result of various civil society institutions and the media. From the time of the Madres de la Plaza de Mayo (the silent vigil by mothers of the “disappeared,” at the height of the military regime), civil society organizations have become an important part of Argentina’s political life. Organizations such as CELS (the Center for Legal and Judicial Studies), ADC (the Association of Civil Rights), CIPPEC (the Center for Implementation of Public Policies), Poder Ciudadano, Conciencia and others have had a generally positive impact: holding the violators of human rights accountable in the court of public opinion, ameliorating the devastating impact of the economic crisis by providing welfare and social services, enhancing the capacities and accountability of congress and providing the basis for Néstor Kirchner’s impressive judicial reform proposals, which give professional associations a major role in vetting court appointments. “Watchdog” journalists, both print and electronic, have likewise played an important role.

There have also been important positive gains in the Argentine economy over the past 15 years. The economic liberalization reforms of the 1990s may have been carried out in too drastic a fashion, and/or been too compromised by the strength and self-serving influence of key economic groups, but the net effect of trade liberalization, privatization and other structural reforms, together with the weakening of trade unions—all admittedly with enormous turbulence and very high social cost—was the emergence of a more competitive and productive Argentine economy. Argentina has grown at a very impressive 9% average annual rate since 2002, though some of this was simply recovery from the drop of more than 15% in 2001–2002. More important, Argentina’s export profile has changed, away from overwhelming reliance on primary products (mainly grains and beef) toward a more diversified mix of agro-industrial products (especially soybeans and various soy products), automobiles, steel, petrochemicals, tourism and engineering services.

The increase in volume of Argentine exports in the past 15 years, one Argentine economist has demonstrated, is greater than that experienced at the height of Argentina’s belle epoque boom in the late 19th and early 20th century. Agricultural exports have climbed from 1.2 tons per Argentine in 1985 to 2 tons per Argentine today. Increases in prices for Argentine exports during the past five years, largely driven by the expanding role of China and India in the world economy, have produced a marked improvement in Argentina’s balance of trade.

Like Chile, Peru and Venezuela, Argentina is well-connected to the world economy today, able to export goods for which world demand is high and may well stay high. The classic Prebisch-Singer thesis, that the terms of international trade are and always will be adverse for Argentina (Raúl Prebisch’s own country) and other developing countries, appears to have been reversed, as the prices of both primary agricultural commodities and of minerals have risen faster than those of industrial goods. And the classic tension in Argentine history—long reflected in struggles over monetary policy—between the needs of exporters and of Argentine consumers, who used to consume precisely what the country mainly exported, has been largely resolved, as Argentina’s export profile has diversified.

An historic opportunity may exist to develop the Argentine economy on a sound and stable basis, if Argentine entrepreneurs harness innovation to enhance competitiveness, as they have done in the soy sector, for example. This is by no means a foregone conclusion, however, as much of Argentine business has for many decades been largely dependent on subsidies, concessions, tax breaks, state contracts and sweetheart deals.

Argentina’s Economic Prospects | We encountered conflicting views on Argentina’s current economic situation and medium-term prospects.

First, the good news: The rate of growth of GDP in 2005 was 9%, with nearly 8% projected for 2006; GDP has risen 40% (35% per capita) since 2002. Poverty and unemployment, though both still much higher than before the 2001–2002 meltdown, have declined significantly; unemployment is under 11%, compared with 21.5% in May 2002. International reserves are robust, having climbed back up to more than $25 billion even after Argentina paid off its entire pending obligation ($9.5 billion) to the IMF. The external position, including debt, is now strong, with a balance-of-payments surplus of $5.4 billion in 2005 and similar levels in the previous two years. Investment at 19.8% of GNP, is fairly high, with some $4 billion in foreign investment in 2005, though foreign investment is only half the figure for neighboring Chile, a country half Argentina’s size, and only one-fourth that in Brazil. Inflation, at about 11% annually, is moderate in a country that experienced hyper-inflation of astronomical proportions in 2000–2002. Taken together with the improved insertion of Argentina’s economy in the world economy, these are positive indicators.

There are countervailing reasons for concern about Argentina’s economic prospects, however:

Fiscal policy is weakening, and the current surplus is eroding, (from 3.7% of GDP in 2004 to 1.5% in 2005), as expenditures are rising more quickly than revenues, especially in the provinces. Revenues, moreover, are mainly tied to a value-added tax, a tax on exports and a tax on all financial transactions, all of which are subject to quick decline in periods of economic downturn. The Kirchner government has been buying popular support in part by raising the salaries of public-sector employees, increasing unemployment insurance and pension benefits, raising transport subsidies, freezing the costs of various public services, eliminating or reducing highway tolls and investing in public works, and the likelihood is great that these tendencies will increase during a probable re-election campaign. Some of those adjustments compensate for earlier losses, and some of the investment is clearly warranted, but the fiscal outlook is cloudy.

Although inflation is still moderate at 11% annually, it is being contained largely by price-control mechanisms unlikely to be sustainable for long, and by such immediately popular but ultimately self-defeating measures as temporarily banning beef exports to keep pressure on domestic prices, urging boycotts of supermarkets that raise prices or jawboning business leaders. Hidden inflation is also rising, through “special” charges of various kinds.

Argentina has increased the volume of its exports to an important degree, but less so than Brazil, Chile, Peru and other competitors, and it has actually lost market share in the proximate Mercosur region.

Although there has been considerable domestic and international investment in Argentina in the past three years, much of it has been in construction and little in capital goods and increased production capacity. A large share of the stunning growth in Argentina since 2003 has been from employing underutilized already-installed capacity, but the limits on this source of growth are close at hand. Increasing global interest rates, meanwhile, could soon reduce the flow of foreign investment to Argentina and other emerging economies.

Argentina’s current windfall from high prices for its exports of petroleum, gas and petrochemical products is fragile, as investment lags in the energy sector, known oil and gas reserves are declining and domestic production is only slightly greater than local demand. Without new investments soon, particularly from abroad, Argentina may quite soon face energy shortages.

The favorable international context of recent years is vulnerable. Commodity prices have probably already peaked and are beginning to decline. A 10% decline in world commodity prices would translate into a current and fiscal account loss in Argentina of 1.4% of its GDP. Interest rates in the US and other OECD countries are beginning to rise. A predictable global slowdown caused primarily by high energy prices and rising interest rates could begin to slow Argentina’s growth and eventually sap Argentina’s reserves.

What is perhaps most troubling, however, is that Argentina is not making the strategic decisions and investments necessary to maintain growth and competitiveness. It has abandoned the counter-cyclical policies of fiscal restraint that Lavagna was implementing early in 2005 without substituting a clear strategic vision for development or disciplined priorities for investment and reform. The politically courageous efforts that the Bachelet government has undertaken in Chile to invest windfall copper profits, largely abroad, in ways that create future assets, produce some currently usable income, provide “rainy-day” protection and keep Chile’s currency from becoming overvalued are not being undertaken—or apparently even contemplated—in Argentina. Nor is there anything in Argentina comparable to Chile’s national energy policy or to Brazil’s concerted efforts to strengthen education at all levels. On the contrary, virtually everyone we talked with spoke of cortoplacismo (short-termedness) as one of Kirchner’s defects, but most also emphasized that Argentine governments over many years—some said at least 50—have suffered from the same vice.

A prime example of this long-term tendency has been Argentina’s fiscal performance since World War II, when it built up a healthy surplus by exporting to the combating countries. Over the next years, Argentina drew down its reserves, then took out extensive international loans, moved on to raid national pension plans to service the loans, then skimmed funds from the financial sector when pension funds ran out and finally privatized state companies and used the proceeds for current expenses. One government after another, civilian or military, spent beyond the country’s resources, cheerfully passing the mounting debt on to the next government—until the music stopped in 2001.

Why Does Argentina So Consistently Disappoint? | In the late 19th and early 20th century, Argentina was one of the world’s most prosperous nations, with per capita income among the world’s top 10. Its economy, state apparatus, social programs, educational system and cultural institutions were considerably more advanced than those of neighboring countries, including Brazil and Chile. But Argentines today are painfully conscious that in many cases their grandparents had higher living standards than they do, and that the country has been falling back for at least 50 years, in absolute and especially in regional (and worldwide) comparative terms.

This decline has occurred despite comparative advantages that Argentina has long enjoyed, and to some extent continues to enjoy. The super-fertile soil of the Argentine pampa remains enormously productive and supports two crops a year. Argentina can successfully compete internationally in agriculture while significantly taxing agriculture exports, which have to be subsidized in many other countries. The country has other natural resources, including petroleum, gas and hydroelectric potential, and it offers much to international tourists. Argentina’s long head start in education still provides the country with a competitive advantage in human resources, with high literacy, skilled labor and a strong professional sector. Argentina could credibly compete for Spanish-language call centers, biogenetic and biotechnology development, medical services, fashion and cinema—but it mostly fails to do so.

Similarly, Argentina has consistently been an underachiever regarding democratic governance. It has long had many of the conditions thought to nurture democracy, including high levels of education and wealth, a large middle class, well-organized labor unions, strong civil society institutions and, since 1945, the elements of a stable party system, some parts of which, especially the Peronist movement, have been remarkably resilient and durable.

Yet Argentina has had great difficulty achieving and sustaining effective democratic governance. Between 1930 and 1983, 12 presidents, both elected and de facto leaders, were removed from office by force. Since 1983, only Carlos Menem has managed to complete his constitutionally mandated term, and Juan Peron was the only one to do this between 1928 and 1989; revealingly, both then got the rules changed to permit their immediate reelection. The tendency of virtually all military governments and civilian regimes since 1945 to replace judges of the supreme court by executive fiat has weakened the judiciary and its capacity to check hyper-presidential tendencies. Congress and the professional bureaucracy have been repeatedly weakened as well.

Although it is remarkable that Argentina preserved democratic institutions through all the difficulties of the past 23 years, an important underlying fact is that these have been far from effective as means of governance and accountability. Democratic institutions have helped Argentina avoid or contain political violence, no minor accomplishment, but they have not been robust enough to permit the country to make and implement strategic decisions. As one study finds, “the policy-making environment in Argentina is one in which institutions like congress that are designed to facilitate political debate, bargaining and the inter-temporal enforcement of agreements are quite weak; in which key political players (the governors) care little about national policy; and in which complementary enforcement mechanisms such as a strong judiciary or a strong bureaucracy are also lacking. These factors are also enforced by, and in turn reinforce, the capacity and tendency of the executive to act unilaterally.”

This is the context of Kirchner’s constant efforts to aggregate more power—most recently his successful demand in July that Congress institutionalize on a permanent basis major additional budgetary discretion, allowing him unilaterally to change expenditure allocations, a prerogative that Congress had previously granted to the executive in the mid-1990s on an explicitly temporary and emergency basis. Like Menem in the 1990s, Kirchner has systematically concentrated additional executive authority, taken bold initiatives to shake up state agencies and reform the judiciary, and often substituted individual will for consensual negotiations, throwing opponents off balance and forcing the uncommitted to align themselves with him or face exclusion. When Menem acted in this way, he managed to get major market-oriented economic and structural reforms adopted rapidly, while unquestionably weakening political institutions, with a style then generally identified as uniquely personal and actually broadly supported at the time. That Kirchner now proceeds in a very similar manner, again with majority support in public opinion, suggests that there are structural reasons for this tendency that go beyond individual idiosyncracy.

Why does Argentina experience this recurring pattern? Why does it reward leaders who aggregate personal authority at the expense of institutional integrity; who act decisively but unilaterally at the expense of durable coalition-building; and who consistently privilege tactical short-term calculations over long-term strategic vision? Why do others in Argentine society—political parties, business groups, labor unions, civil society organizations and plain citizens—also act so often in short-term, zero-sum and ultimately self-destructive ways? Why do Argentines follow leaders more than respect leadership? Why is shared national vision so hard to achieve in Argentina?

The Importance of Institutions | Brazil in the past 15 years has experienced the slow but steady growth and strengthening of institutions, especially state institutions and political institutions, including major national parties, that can process demands, reconcile differences, resolve disputes, develop and implement policies and programs. Brazil has a strong president and congress, an independent and influential judiciary and a professional and qualified career bureaucracy, at least in some sectors. It is largely because of the growing strength of institutions in Brazil that Lula, from the most humble of backgrounds, could finally become president; that his administration could survive the forced resignation of his right-hand political advisor and then his finance minister without major discontinuity; that tough budgetary and other policy choices can (at least sometimes) be made; and that Brazil usually follows a coherent foreign policy—a policy of state, not of one party or leader, or of the moment.

Taken together with a high degree of consensus among leading sectors of society on the diagnosis of major national problems and therefore on the broad outline of many policies, this institutional strength permits a relatively high degree of predictability (previsibilidad) in Brazil. This predictability, in turn, permits the state, private enterprise and plain citizens to make medium-term plans and decisions, confident that most circumstances on which their judgments are based will not change radically, and that the basic “rules of the game” will continue to operate, for the medium-term future, at least.

Brazil still faces immense national challenges: widespread poverty, profound income disparities, major continuing educational shortfalls, rampant crime and brutal prison and police repression, endemic corruption, subtle but pervasive racism and widespread bureaucratic inefficiency, to mention a few. But effective institutions, incrementally constructed and reinforced over the years, and especially with deliberate nurturance during the two-term presidency of Fernando Henrique Cardoso (1994–2002), provide a solid framework for steady and likely continuing progress in confronting these challenges.

Unlike Brazil, Chile has historically long had strong institutions: well-developed and independent branches of government; clearly established civilian control of the armed forces; distinctive political parties; a strong president and congress as well as traditions of judicial autonomy; a professional civil service, business and professional associations; a relatively powerful church, and many other organizations of civil society. The breakdown of Chilean democracy in the early 1970s and then the military dictatorship under Augusto Pinochet interfered with and to some extent weakened many of these institutions, but they all retained some viability during the Pinochet years, while new centers of power also developed, including independent and influential think tanks, for example. The past 15 years in Chile have seen most of the previously strong institutions reinforced and further developed. The individual political parties remain strong and for 16 years have functioned within a remarkably stable framework of two opposing broad coalitions: the Concertación (which has won 4 successive presidential elections) and the Alianza, which polled about 48% of the vote in each of the last two presidential contests. Business and professional associations, human rights organizations, the Catholic Church and evangelical Protestant churches, the print and the electronic media, trade unions, women’s rights groups, foundations and think tanks, associations to protect the environment and other causes: All interact to shape public policy.

Effective institutions, together with a broad centrist consensus on most of the main policy questions confronting Chile, account for a very high degree of previsibilidad. Chileans rely on the established rules of the game, which people generally believe (especially on the basis of the past 20 years) will only be changed slowly and consensually. The strength of Chile’s institutions and of wide public confidence in their underlying stability framed the remarkable election in 2006 of Michelle Bachelet: a Socialist, a woman, an unwed mother and a non-believer. No one expects President Bachelet to take radical steps against capitalism, the church or traditional customs, norms and values. In some ways, there may indeed be too much pressure for conformity and consensus in Chile today, but the country unquestionably derives enormous strategic advantage from the fact that its state, business, other organizations and citizens can and do make long-term decisions and investments.

Peru has historically long had weak institutions and a high degree of instability, with frequent changes of government and of policy direction. The majority of voters in 2006 ultimately chose “change with responsibility,” the proposal by candidate Alan Garcia to undertake incremental reforms without radical ruptures. But the challenge Alan Garcia now faces as Peru’s newly elected president is that the country’s institutions are almost all weak, unable to withstand pressures, process demands or develop and implement programs. Except for Garcia’s own APRA (strong for 70 years in the modern coastal region), Peru lacks solid political parties; party labels come and go mainly as individual vehicles. Congress has been deeply compromised and the judiciary severely weakened. The bureaucracy is weak, except in a few islands of excellence, such as the Central Bank and the tax-collection agency. The state’s capacity to implement any new program consistently and effectively is in doubt, as is the likelihood that key policy directions will survive the vaivienes (ups and downs) of Peru’s kaleidoscopic politics. There is precious little previsibilidad in Peru, at least to date. The challenge of governance is greatly exacerbated by the fact that a large and increasingly vocal part of the population is deeply alienated from whatever system and “rules” exist and may well be mobilized to disrupt.

Although its national composition and history are radically different, Argentina’s institutional situation seems surprisingly closer to Peru’s than to that of Chile or even Brazil. For years, Argentina has seen nothing resembling stable and predictable rules of the game. Procedures have been changed willy-nilly regarding the state’s role in the economy; elections and electoral rules; executive-legislative relations; the relation of the federal government to the provinces; the composition and functioning of the courts; budget procedures; the legal status of the Central Bank, and—most dramatically—the convertibility of the currency and the liquidity of savings. Although the Peronist Party has maintained its relevance, other parties have greatly weakened, or have grown quickly for a time, only to implode. The framework for civil-military relations, particularly regarding legal responsibility for the human rights violations of the 1970s, has been settled, changed, changed again and then reopened for further change.

In this framework of extreme uncertainty, many sectors have taken direct action: strikes by trade unions; blocking highways by increasingly active and aggressive picketing organizations (piqueteros); widespread looting following the two hyper-inflationary crises; speculation and the manipulation of credits and exchange rates by the financial and industrial sectors, and blatant corruption as a standard business practice. These tactics, in turn, feed upon themselves, narrowing the time horizons and civic spirit of all actors, making cooperation extremely difficult, undermining the possibility of medium-term planning or downstream commitments.

Politicians, parties, business leaders, trade unions, workers in the informal economy, bureaucrats and piqueteros all act in their immediate and short-term interest, further undermining trust, the search for consensus and the will to compromise. The absence of effective political institutions to process and reconcile conflicting demands is both a cause and a consequence of this vicious circle.

Argentina has many assets and advantages, but until it can build durable and effective institutions, its national prospects will remain problematic.