The Reforms of the Nineties in Argentina By Rodolfo Diaz WCFIA Fellow - Harvard University THE REFORMS OF THE NINETIES IN ARGENTINA Rodolfo Díaz WCFIA Fellow Harvard University This book is published under the auspices of the Weatherhead Center For International Affairs of Harvard University 2 The Reforms of the Nineties in Argentina By Rodolfo Diaz WCFIA Fellow - Harvard University CONTENTS Introduction THE STARTING POINT (7) 1. The State: the "Bureaucratic Authoritarian Model".2. The Econ- omy: the "Assisted Capitalism". 3. The Means: Inflation. 4. The Ends: Transfers to the Private Sector. 5. The Starting Point: The Collapse of Assisted Capitalism Chapter I: Reforming the Economy I. ECONOMIC REFORM (33) 1. The Collapse of 1989. 2. The "Plan BB”. 3. Contents of the New Law. 4. The Approval. 5. Solutions to Problems. 6. Complementary Measures. 7. Enforcement of Economic Reform. 8. Information flows. 9. Effects. 10. Measuring the Reforms. 11. Two "Paces". II. MONETARY REFORM (61) 1. Crisis and Hyperinflation. 2. The Proposal. 3. Contents of the "Convertibility Law". 4. The Approval. 5. Implementation. 6. The "Impossible Trinity". 7. The Enforcement of Convertibility. 8. The Fixed Exchange Rate. 10. Effects. 11. Inflationary Effects of De- valuation. 12. Elimination of Devaluation as Monetary Policy In- strument. III. FISCAL REFORM (85) 1. Inflation: The Tax of Assisted Capitalism. 2. Fiscal Situation in 1989. 3. The Proposal. 4. Approval: Defeat and Debate. 5. The Contents of Law 24073. 6. Enforcement and Tax Collection. 7. Public Expenditure and Fiscal Deficit. 8. Budgetary Institutions. 9. The Fiscal Solvency Law. Chapter II: Reforming the Society I. EDUCATIONAL REFORM (117) 1. Fairly Good Numbers, Sense of Failure. 2. Nation and Provinces. 3. Teachers and Governments. 4. The Proposal. 5. The Approval. 6. Contents of the Federal Education Law. 7. Implementation. 8. The Enforcement of the Federal Education Law. 9. Effects. 10. Financ- ing. 11. Resistances and Failures. II. LABOR REFORM (149) 1. Unemployment Became Visible. 2. The Proposal. 3. The Contents of the Employment Law. 4. The Approval. 5. Modifications. 6. Effects. 7. Black Labor. 8. The "exit" choice. 9. The "irregular" economy. 10. Convertibility and Wages. 11. Wages Negotiation by Productiv- ity. 12. Wages Negotiation and Stability. 13. Twofold Results. III. SOCIAL SECURITY REFORM (195) 1. A Pensions System on the Ropes. 2. Debt and Lawsuits. 3. The Original Proposal. 4. The Bill. 5. Approval. 6. The New System. 7. Modifications. 8. Effects. 9. Deficit. 10. Transference of Provin- cial Pensions Systems. 11. Transition and Evasion. Chapter III: Reforming the Polity I. STATE REFORM (229) 1. Survivals of the Past. 2. The Political Nature of State Reform. 3. The Public Sector and the SOFs. 4. Crisis, Opportunity and Change. 5. The Proposal. 6. Antecedents. 7. The Approval. 8. Con- tents of the State Reform Law. 9. Implementation. 10. Effects. 11. Challenges Ahead. 12. A Change to Last. 3 II. CONSTITUTIONAL REFORM (265) 1. The Historic Constitution. 2. The Path to the Constitutional Re- form. 3. The “Pacto de Olivos”. 4. The “Declarative Law”. 5. The 1994 Elections for Conventionalists. 6. The “wrap”. 7. The National Constitutional Convention. 8. The Reformed Constitution. 9. Consti- tutional Laws. III. CIVIL SERVICE REFORM (301) 1. Enlargement and Deterioration. 2. The Proposal. 3. Downsizing. 4.Professionalization. 5. Description of the SINAPA. 6. Institu- tionalization of the Changes. 8. Qualification. 9. Follow up. 10. Effects. Chapter IV: Criticisms I. ON PRESIDENTIAL DECREES (327) 1. Delegative Democracy. 2. Democracy at Risk. 3. Necessity and Ur- gency. Decrees. 4. NUDs Over Time. 5. NUDs in the Nineties. 6. De- mocratic Consolidation. II. ON POLITICAL CORRUPTION (341) 1. Political Corruption in the Nineties. 2. Two Asymmetries, Two Questions. 3. Analytical Approaches. 4. Perceptions. 5. The Facts. 6. Reforms and Institutional Changes. 7. Characteristics of the Phenomenon in Argentina. 8. Hypotheses III. ON PUBLIC DEBATE (377) 1. Reformers and Society. 2. The media contribution. 3. The Study. 4. The Analysis. References (393) Aknowledgements (411) 4 The Reforms of the Nineties in Argentina By Rodolfo Diaz WCFIA Fellow - Harvard University Introduction 5 6 The Reforms of the Nineties in Argentina By Rodolfo Diaz WCFIA Fellow - Harvard University Introduction THE STARTING POINT What was changed in the nineties in Argentina was not the "Peronist" state built in the forties nor the postwar ISI economy; instead, what was reformed was the state apparatus built by the military since the sixties (untouched during the democratic tran- sition) and its related economic organization of "assisted capi- talism", which was characterized by an active state that used in- flation as a tax to extract income from society, and public con- tracts and state-owned firms as instruments to redistribute that income to certain actors in the private sector. The process of reforms of the nineties in Argentina con- sisted of a series of "specific solutions" to a series of "specific problems"; the reforms have been "choices" made to solve those problems, and the starting point was the array of problems that was necessary to be solved at the end of the eighties. That starting point was not a "chaotic" aggregation of problems; on the contrary, it was a "non-chaotic" aggregation of problems. It was an aggregation of problems structured as a "function" of the economic organization that the Argentine democracy inherited from the military dictatorship. That eco- nomic organization was a specific type of capitalism that in this study will be referred to as "assisted capitalism"1, which in Argentina at the end of the eighties used to be named "prebendary capitalism".2 Here, a brief review about 1 See GERCHUNOFF, Pablo and VICENS, Mario: Gasto Público, Recursos Públicos y Fi- nanciamiento en una Economía en crisis. El caso Argentino, Instituto Di Tella (Mimeo); Buenos Aires, 1989. 2 The word "prebendary" comes from the latin "prebenda" that means the right to perceive a rent, associated to certain institutional position or privilege. 7 that "variety" of capitalism3 and its collapse will be pre- sented. 1. The State: the "Bureaucratic Authoritarian Model" Douglass North wrote that the performance of a society in general, and of an economy in particular, is determined by certain structural characteristics, amongst which the struc- ture of the political and economic organizations are the most important. That is why "models of state should be an explicit part of any analysis of secular changes".4 The models of state in Argentina will be referred to in relation to the re- form process. As regards the reforms in Argentina, the conventional wisdom is that in the nineties, the state that was changed was the old "populist" state that the "Peronists" had built in the forties and fifties. That is wrong. The "Peronist" state had disappeared long before 1989, when the process of reforms began. The model of state that was in place in Argen- tina at that time was the one built by the military regimes since 1966. Military dictatorships had ruled Argentina for a very long period of time: seventeen years -from 1966 to 1983- with a relative interruption5 of thirty-five months in the seventies. Those military governments changed the model of "National-Popular State"6 and its ISI-type economic organiza- tion into a new model: the "Bureaucratic-Authoritarian 3 See: HALL, Peter and SOSKICE, David: An Introduction to Varieties of Capitalism in "Varieties of Capitalism: The Institutional Foundations of Caoparative Advan- tages"; Forthcoming. These authors analyze "legitimate" varieties of capitalism; assisted capitalism could be consedered a "bastard" one. 4 NORTH, Douglass: A Neoclassical Theory of State; in "Structure and Change in Economic History", Norton, New York (1981) pg. 20. 5 Relative parenthesis because since 1973 to 1976 democracy was not consolidated and military formal and informal influence remained significant. 6 In the tradition of the Latin American Political Science, the "old populist state" is called "Estado Nacional y Popular": National-Popular State. 8 The Reforms of the Nineties in Argentina By Rodolfo Diaz WCFIA Fellow - Harvard University State"7 and its own economic organization, Assisted Capital- ism. The first democratic government elected after the dicta- torship performed well regarding political aspects of democ- ratic transition, liberties and rule of law; the trial and conviction of the Military Juntas that ruled the country from 1976 to 1983 was the paramount example of this, and Argen- tineans are very proud of it. But the basic structures of the economy remained untouched; most of the economic institutions of the Bureaucratic-Authoritarian State "survived" democrati- zation until the crisis of 1989. So, what was changed in Ar- gentina by the reforms of the nineties were the "surviving" institutional structures of the Bureaucratic-Authoritarian State and its economic organization: “Assisted Capitalism”. To better analyze this starting point, the argument will compare some institutional features of the "National-Popular" model of state with the "Bureaucratic Authoritarian" model. This comparison will have recourse to five legal characteris- tics based on classic instruments of Administrative and Con- stitutional Law: i) the juridical "nature" of the state's economic units; ii) the "principle of rationality" that un- derlies that nature; iii) the "legal status" of the adminis- trators