A hotel room too far?

Throughout the last decade, during the presidencies of the late Néstor Kirchner, and his wife and successor Cristina Fernández de Kirchner, accusations of corruption have abounded, but none have managed to stick, either as a political liability or as a legal threat. However, that has changed in recent months as two long-term corruption investigations continue to gain steam, threatening the president, the vice president and other high-ranking government officials. Corruption in Argentina is not a new phenomenon and neither scandal is as bad as the weapons trafficking scandal that engulfed multiple members of Carlos Menem’s cabinet in the 1990s. Nonetheless, it could prove more damaging simply because the Kirchner government is increasingly unpopular as the economy weakens and tolerance wanes for politicians with their hands in the cookie jar.

Both investigations deal with alleged improprieties by either the president or members of her cabinet in business dealings involving third parties and the government. The first, known locally as the Lázaro Báez case—named after the Kirchner’s business partner in Néstor’s home province of Santa Cruz—involves the president in what appears to be a money laundering scheme. Formal legal investigations and investigative reporting by La Nación—a Buenos Aires newspaper—have unearthed arrangements between companies owned by Báez and hotels belonging to the Kirchners whereby Báez’s companies paid more than 14.5 million pesos to reserve hundreds of rooms in those hotels, few of which were ever used. This ties circumstantially to the fact that Báez has already been formally accused of money laundering in a different investigation, and that his companies received more than 80 percent of the government contracts awarded in the past decade in Santa Cruz. Moreover, the amount paid to the hotels represents 20 percent of the Kirchner’s declared assets—which have increased tenfold in the past decade and have been the source of significant controversy.

The second investigation involves Vice President Amado Boudou and Ricardo Echegaray, the head of Argentina’s federal tax agency, the Administración Federal de Ingresos Publicos (AFIP), and their role in lifting Ciccone Calcográfica out of bankruptcy in 2010-11 before it eventually won a contract to print peso notes. The details of the case are complex, but Boudou—then the Minster of the Economy—and Echegaray are accused of using their office to maneuver new capital toward the company and manipulating the regulatory framework in favor of their desired outcome. According to a petition for an indagatoria—a formal inquiry by a presiding judge—filed on February 6, Echegaray allegedly acted directly through his role at the AFIP while Boudou was involved through Alejandro Vandenbroele, the head of The Old Fund, SA, the company that took control of Ciccone. Boudou has stridently denied ever having met Vandenbroele, even as evidence continues to accumulate about their relationship. Boudou and Echegaray are both accused of felonies in the indagatoria petition, but it remains to be seen what legal action will be taken against them. The case, however, will remain in the public consciousness as the investigations and trials continue.

The persistence of serious corruption allegations against the presidential couple and prominent cabinet members come at a delicate time for Cristina Kirchner. While the Kirchners were able to shrug off corruption allegations in the past, thanks in large part to torrid economic growth, the situation now is much different. Growth has slowed and inflation continues to grow, leaving Argentina susceptible to a period of stagflation during the last two years of her presidential term. During the fat years, many Argentines were willing to look the other way at high level corruption in way they will not during a period of falling real wages.

On February 13, the government unveiled a new, apparently credible method for calculating inflation after years of rigging its statistics. The announcement came just weeks after the peso was allowed to depreciate more than 20 percent in a few days after months of “micro-devaluations” of a few cents per day. To many, this indicates that the government is serious about correcting some of the imbalances that afflict the Argentine economy. Minister of the Economy Axel Kicillof and Cristina Kirchner have even hinted at a rollback in subsidies that are estimated to cost 4.9 percent of GDP. Undoubtedly, most of these measures are ones the government would have to take sooner or later. However, they are also politically difficult since they virtually guarantee an initial decline in lower- and middle-class living standards and may also cause a short-term burst of inflation above the current rate that is already is above 25 percent.

The fallout from these types of adjustments would challenge even the most popular governments, not least one whose popularity sits below 40 percent. Moreover, economic crises have forced two of Argentina’s past five elected presidents to relinquish office early, including Néstor Kirchner’s elected predecessor Fernando de la Rúa. Argentina is not yet on the brink of a crisis, but discontent with the economic situation is growing. As these cases proceed, the major players in the government will increasingly be perceived as having profited from an economic model that, in the end, hurts average Argentines. What is more, the government’s decision to attack the judiciary and media for investigating corruption will divert resources away from dealing with the economy while doing little to convince the public that the allegations lack credibility.

The real danger for Cristina Kirchner, therefore, is not that a corruption scandal brings down her government, but rather that, amid significant economic problems, her and her cabinet’s corruption becomes the proverbial “straw that breaks the camel’s back.”

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