Tag Archives: Peru

Government Leaders Should Watch Who Watches Them Wearing Their Pricey Watches

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Peruvian President Dina Boluarte is the latest government leader to be ensnarled in a corruption flap thanks to a penchant for high-end time pieces. Before her it was the then-Prime Minister of Croatia Ivo Sanader (here) and after him the then-Thai Deputy Prime Minister Prawit Wongsuwan (here).

Like them, she apparently believed wearing a different expensive watch on different occasions was part of the job of running a country. And like them, her luxurious taste was caught on camera. Photographs show her at one or another function modeling watches that in toto cost more than $500,000.

From the collection of Peruvian President Dina Boluarte. Source: Presidential Flickr account

Just as with the Sanader and Wongsuwan flaps, photos of Boluarte’s watch collection prompted uncomfortable questions: Why didn’t she report the collection on her income and asset declaration form as required by law? And how could she, like them a longtime government employee, afford such a pricey collection?

Despite Sanader and Wongsuwan’s lame explanations –“I didn’t know I had to report them.” “Oh wait, they aren’t mine, I just borrowed them.” – the exposure of their unexplainable wealth cost them nothing more than civil society reproaches. Whether Peruvian authorities will accept Boluarte’s similarly flimsy explanations remains at this writing to be seen.

Beyond the reminder that some government leaders are incurably venal, these serial watchgates offer lessons. For leaders enamored of fancy timepieces, report them on your income and asset disclosure form or keep them up your sleeve when a photographer is nearby. For anticorruption agencies, there is a less flippant, more important lesson.

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Public Procurement in Peru: Three Urgent Reforms to Curb Corruption

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Peru is in the midst of yet another major corruption scandal, this one involving a cartel of companies called the Construction Club. The Club allegedly operated as a bid-rigging cartel for major public construction works, in which the members of the Club would decide which one of them would win any given public contract and at what price, and the other Club members would deliberately submit higher bids to create the illusion of a competitive process. What started as an antitrust scandal has turned into a corruption scandal, as the Club is also accused of bribing public officials (including former President Vizcarra) to “guarantee the functioning of the cartel”.

The alleged bribery and bid-rigging are shocking but not surprising. This sort of corruption is all too common in the public procurement process in Peru and elsewhere (see here, here, and here). The vulnerability to corruption stems largely from the lack of accountability and transparency in the public procurement process, as well as the lack of professionalism in the public service. Can anything be done to address these longstanding problems? While there is no simple or overnight solution, there are in fact a number of measures that Peru can and should adopt to address the corruption vulnerabilities in its public procurement process and reduce the likelihood of another incident like the Club scandal recurring in the future.

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Peru’s Misguided Proposal for Countering Corruption in Arbitrarion

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In Peru, as in far too many countries, the judicial system is corrupt and unreliable. For this reason, companies often find arbitration is an attractive alternative for resolving commercial disputes—not just because arbitration can be cheaper and faster than judicial dispute resolution in these cases, but because the arbitrators are (supposedly) less likely to be corrupt than judges. Alas, corruption has found its way into commercial arbitration in Peru as well, as illustrated most prominently by a recent case in which agents of the Brazilian construction firm Odebrecht allegedly paid bribes to arbitrators to secure favorable decisions in pending cases between Odebrecht and the Peruvian government (see here, here, here and here). 

A bill was introduced into the Peruvian Congress this past February that, according to its proponents, would address this problem. This bill would amend Peruvian arbitration law to add a requirement that all international arbitrators hearing domestic cases have their qualifications certified by the state education regulator (known by its Spanish acronym SUNEDU) within 30 days. On its face, this requirement doesn’t seem to have much to do with corruption. But the bill’s advocates have been quite explicit that this new rule should be understood as a way to prevent future corruption of arbitration proceedings in Peru. According to the bill’s supporters, corruption in arbitration arises because foreign arbitrators do not understand Peruvian anticorruption laws; therefore, the argument continues, requiring a state agency to validate the credentials of these foreign arbitrators would ensure that they understand the Peruvian system, including the prohibitions on corruption in the arbitral system and the regulation on corruption more generally (see here and here).

If that sounds silly, it’s because it is. This bill not only fails to address the actual sources of corruption in Peruvian arbitration, but might actually make things worse. Arbitral corruption is a genuine problem in Peru, but this is not the right way to address it.

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Sunday’s Election Will Not Be Peru’s Reckoning with Corruption

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It has been a dramatic five years in Peru since the last presidential election.

A series of standoffs between the executive and legislative branches have seen one dissolution of Congress and three attempts at impeachment of the president. Two former presidents have been arrested for their involvement in the Odebrecht corruption scandal, and a third committed suicide moments before the police arrived to arrest him. Keiko Fujimori, the opposition leader and two-time presidential runner-up, was arrested for corruption, released, and is now running for president once more.

This turbulence came to a head last October, when Peru was engulfed in its biggest political crisis in a generation. Martín Vizcarra, the former president who had served for two and a half years since Pedro Pablo Kuczynski resigned in 2018 in the face of a vote-buying scandal, was himself impeached by Congress following credible but unproven allegations that he had accepted bribes earlier in his career. Congress appointed Manuel Merino, the president of the Congress who spearheaded the campaign to impeach Vizcarra, as interim president. Peruvians, outraged at the abrupt removal of a president who enjoyed considerable public support for his commitment to anticorruption reform, took to the streets to protest. They were met with police violence, and two young Peruvians were killed. Merino relented, resigning the presidency after a five-day tenure, and Congress appointed Francisco Sagasti – a moderate who had voted against impeaching Vizcarra – to serve out the final months of the term until the April 11 election.

The magnitude of the public’s mobilization against Merino’s interim presidency was seen by many observers (myself included) as a decisive turning point in the Peruvian people’s willingness to tolerate a corrupt political class. The country’s public health and economy have been ravaged by Covid-19. If there were a perfect moment for a meaningful anticorruption movement to sweep from the bottom to the top – for Peruvian voters to have a sort of “day of reckoning” with systemic corruption – April 11 seemed like that moment.

But now, on the eve of the election, this reckoning looks doubtful to arrive.

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How Rampant Corruption Has Brought Peru to its Current Political Crisis

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Earlier this week, Francisco Sagasti was sworn as the new president of Peru. He is the 87th president in the country’s 200-year history, the fourth president in the current five-year presidential term, and the third president in a week.

The unusual chain of events that led to Sagasti’s presidency comprise one of Peru’s biggest political crises in recent history. On Monday, November 9th, Congress voted to remove President Martín Vizcarra for “moral incapacity” and appointed the president of Congress, Manuel Merino, to serve as interim president. This move incensed the Peruvian public; Vizcarra had enjoyed a public approval rating of nearly 60% even after Peru suffered one of the worst Covid-19 outbreaks in the world. Peruvians took to the streets, protesting Vizcarra’s removal and demanding the resignation of Merino, who was the driving force behind the impeachment proceedings. Police violence against protestors left two dead, more than forty missing, and at least ninety injured. Merino resigned five days into his tenure, and Congress named Sagasti – one of the minority of Congressmen who voted against Vizcarra’s impeachment – as interim president until the April 2021 elections.

This crisis represents the culmination of several growing tensions in Peruvian political life, including an increasingly antagonistic relationship between the executive and legislative branches, a widespread rejection of the political establishment and embrace of populism, and the enormous toll of COVID-19. But no issue is more central to this story than that of endemic corruption. Indeed, the intractable problem of corruption in Peru has been largely responsible for the current political crisis.

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How Grand Corruption Threatens Liberal Democratic Institutions

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As regular readers may have noticed, GAB has been inactive for the past week (that is, until Rick’s post yesterday). Apologies for the lack of content – as I’m sure you can imagine, the U.S. presidential election has been consuming my attention and that of most of our regular contributors. But now that the election outcome is clear (notwithstanding President Trump’s baseless claims of election fraud and the craven complicity of his Republican Party enablers), it’s time to get back to blogging. I suspect that much (though not all) of our content over the next couple of weeks will be related to the outcome of the U.S. elections—both backward-looking evaluation of the impact of the Trump Presidency on corruption in the US and beyond, and forward-looking considerations about the anticorruption agenda under the incoming Biden Administration.

Today’s post isn’t about Trump per se, but it’s loosely inspired by both certain aspects of his presidency and his current refusal to acknowledge and accept the outcome of the election. I want to say a few words about the ways in which corruption, particularly grand corruption at the highest levels of the government, can threaten to undermine the institutions of liberal democracy (free and fair elections, formal and informal checks and balances, the rule of law, etc.). To be clear, I don’t have in mind principally the ways in which politicians might engage in corrupt conduct to help win elections (for example, vote-buying, acceptance of illegal campaign donations in exchange for favors, diverting public funds for partisan purposes, etc.), though these are of course serious and important problems. Nor do I have in mind the broader and more diffuse “institutional corruption” associated with the excessive influence of concentrated wealth, though this too is a grave concern. Rather, I want to consider how grand corruption in the highest levels of government may threaten to erode or subvert (explicitly or de facto) the basic institutional structures of liberal constitutional democracy.

Nothing of what I have to say on this topic is original; it’s all drawn from existing literature, and the arguments are likely familiar to many readers. Still, I thought it might be helpful to highlight three ways in which unchecked grand corruption may contribute to democratic backsliding: Continue reading →

Dissolving Congress to Combat Corruption: Why a Short-Term Anticorruption Victory in Peru Isn’t Worth the Long-Term Cost

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The “Car Wash” corruption scandal that started in Brazil has extended into surrounding Latin American countries, including Peru. All of Peru’s living presidents have been implicated in the scandal, with two currently awaiting trial on corruption charges, one in California fighting extradition, and one who ended his own life just as police entered his home to arrest him. The corruption scandal has also implicated members of Congress, including the head of Peru’s largest opposition party, Keiko Fujimori (daughter of the infamous former president Alberto Fujimori). To make matters worse, investigators have also uncovered an unrelated bribes-for-verdicts corruption scandal in the judiciary.

Peru’s current president, former Vice President Martin Vizcarra, assumed the presidency after his predecessor resigned over corruption allegations. Backed by overwhelming popular support in a national anticorruption referendum, President Vizcarra spent most of 2019 pushing an ambitious anticorruption agenda. His proposed reforms included a new law that bars members of Congress from seeking immediate reelection after one five-year term, transferring the power to lift a Member of Congress’s legislative immunity from Congress to the Supreme Court, and changing the system for appointing judges and prosecutors. On all of these proposals, Congress (controlled by an opposition party) has dragged its feet, likely for self-serving reasons. While Congress eventually passed some of these reforms, including the ban on re-election, the judicial anticorruption bill stalled. After several attempts to pass the bill, on September 30, 2019, Vizcarra took the drastic step of dissolving Congress—a move supported by 84% of Peruvians. Vizcarra issued a decree for a snap legislative election, which took place on January 26, 2020, and in which Peruvians elected a new Congress to finish the current constitutional term ending in 2021. Given the ongoing pandemic, this new Congress has, understandably, yet to fully address Vizcarra’s remaining anticorruption agenda.

It is often said that fighting entrenched corruption involves disrupting the political status quo. President Vizcarra’s decision to dissolve Congress was certainly disruptive—but not in a way that anticorruption advocates should celebrate. Whatever its short-term payoffs, this decision threatens to undermine Peru’s institutional checks and balances, leaving the country more vulnerable to corrupt actors in the long term.

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Even “Tough on Corruption” Proponents Should Worry about “Zero Tolerance” Rules

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“Zero tolerance for corruption,” as Professor Stephenson suggested in a 2014 post, is an expression that can be construed in several different ways: from a general attitude that corruption should be considered “a high priority,” to an uncompromising policy mandating that “all feasible measures to minimize corruption must always be used.” In this post I will discuss another common, narrower understanding of “zero tolerance for corruption,” according to which corruption – at least in certain contexts – must always be addressed with a mandatory predetermined harsh sanction. A clear example of such a “zero tolerance” rule is the Colombian and Peruvian law demanding the instant termination of “any public contract tainted by corruption.” Another illustrative example is the EU’s directive mandating debarment from public contracting of any company convicted of offenses of corruption, fraud, or money laundering.

Granted, the potential deterrent value of mandatory harsh sanctions for corruption is substantial. A company aware that any conviction for corruption will inevitably incur severe penalties is more likely to be dissuaded from violating the law. Nevertheless, the costs of this “take no prisoners” approach to anticorruption may be much higher than the actual benefit. Thus, as Rick Messick recently showed, the law mandating termination of corruption-tainted public contracts has proven to have disastrous ramifications for the infrastructure in Peru and Colombia. As it turns out, not only has the nondiscretionary cancellation of corruption-tainted public contracts halted the advancement of existing infrastructure projects, but it has also deterred investors and developers from taking any part in such projects, for fear that they will be cancelled due to “the tiniest of infractions by anyone associated with the project.” Similarly, debarment is nothing less than “a death-sentence” for companies whose main business involves public contracts, and its mandatory imposition for even a relatively minor offense may be so draconian as to be counterproductive.

This kind of cost-benefit reasoning, though compelling to some, would not convince many proponents of an unequivocally “tough on corruption” stance. Many anticorruption hardliners believe in maximizing deterrence notwithstanding any associated costs. From this point of view, the end of deterring corruption justifies all necessary means. Yet even for those who take this view, it turns out that “zero tolerance” may not be the ideal approach. Supporters of “zero tolerance” rules assume that adoption of mandatory sanctions for corruption would guarantee that actors in the anticorruption system – judges, prosecutors, and legislators – will adhere to the “zero tolerance” ideal, and that such rules would be sustainable. But these decisionmakers in the anticorruption system may evade the application of “zero tolerance” rules where doing so would lead to sanctions perceived (rightly or wrongly) as patently absurd or unjust. In other words, a “zero tolerance” rule on the books does not guarantee that a “zero tolerance” policy would actually be implemented. Consider the various ways that actors in the anticorruption system may avoid triggering the mandatory sanctions for corruption:

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The Dark Side of Righteous Anger: Talking about Corruption After Alan García’s Suicide

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Two weeks ago, former Peruvian President Alan García shot himself when authorities came to arrest him on corruption charges. Garcia’s suicide provoked a diverse range of reactions. Among these, one of the most disturbing was a vulgar tweet from Major Olimpio, a right-wing Brazilian politician who tweeted: “The ex-President of Peru committed suicide upon being arrested. Hopefully this trend catches on here in Brazil. It would big a big savings for the country.” Olimpio, of course, is referring to the dozens of politicians in Brazil implicated in the Car Wash (Lava Jato) scandal.

Olimpio’s tweet taps into the white-hot anger and resentment that continues to sweep across Latin America in response to the revelations of high-level corruption throughout the region. That anger is understandable. Investigations growing out of the Lava Jato operation—particularly those involving the Brazilian construction giant Odebrecht, which has admitted to paying more than $800 million in bribes across 11 countries in Latin America—have exposed pervasive corruption reaching the highest levels of government. Ten former Latin American presidents (including García) have been or are currently being investigated for corruption, along with dozens of other high level officials in multiple countries, and possibly hundreds of rank-and-file officers who were a part of these schemes. But while popular fury over corruption is justified, it should never be okay to mock suicide or make implicit death threats. And while Olimpio’s tweet about García is a particularly extreme case, this sort of hostile, callous, violent rhetoric is becoming disturbingly common in the public dialogue about corruption and its perpetrators in Latin America. For example, the current President of Brazil, Jair Bolsonaro, and his son both tweeted menacing threats to Bolsonaro’s opponent, Fernando Haddad, during the campaign saying that he was “nursing on the teat of corrupt politicians in jail” because he had visited a jailed politician, and that it was “good that he already knew what it was like to go to prison.” Since Brazil is still a country where you are innocent until proven guilty, and Haddad himself had not even been accused with corruption offenses (though several of his political allies had been), these comments were deeply disturbing.

This needs to stop. The anger over corruption is understandable, and to a certain degree a healthy development, given that for so long grudging or cynical resignation was the norm. But rather than channel this anger into violent threats, everyone—especially those in positions of power—needs to temper their anger with more civility. There is a wrong way and a right way to talk about corruption. Crude violent rhetoric is the wrong way.

So what’s the right way? Let me suggest two more appropriate ways to harness the fury over corruption and channel it in a more productive direction.

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The Consequences of Zero Tolerance

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The chart above shows what happens when policy is based on a slogan. In this case “Zero Tolerance.” Procurement rules in both Peru and Colombia require that any public contract tainted by corruption be terminated immediately. As the Brazilian investigation into construction giant Odebrecht unfolded, it became clear that many projects to build highways, power plants, and other infrastructure projects in the two countries had been corruptly awarded.  Authorities in both countries then did what the law told them they must: cancel the contracts.

Most large infrastructure contracts in Peru and Colombia are in the form of Public-Private Partnerships (PPPs), and the immediate termination of a PPP can be enormously costly.  Not only to the firms that paid bribes to secure the contract, but to lenders, suppliers, and the hundreds of other contractors on the project who had no knowledge or involvement in the bribery scheme.  The greatest costs are likely be felt by the citizens of Colombia and Peru.  For as the chart shows, the consequence of zero tolerance is a halt to new spending for roads, power, and other essential facilities as investors and project developers shy away from the risk future contracts will be terminated for the tiniest of infractions by anyone associated with the project.   

Colombians and Peruvians may today be proud their governments are so tough on corruption neither one will tolerate a speck of it in any contract for infrastructure.  Tomorrow citizens of the two countries may have a different view: when power shortages mean the lights won’t come on and the failure to build new roads and maintain old ones produces horrendous traffic jams.  

Last week the World Bank hosted a presentation by Inter-American Development Bank staff where the issue of why “zero tolerance” is a good slogan but a bad policy was examined and means for addressing infrastructure corruption without producing the results shown in the chart was discussed.  A paper the IDB presenters recently published, the source of the figure above and the basis of their presentation, is here.   A video of the session here.