Following in Brazil’s footsteps, Argentina now seems to have its own Lava Jato bribery case. The case came to light after a driver, Oscar Centeno, made available (through a friend, not necessarily with Oscar’s permission) a copy of his detailed notebooks, describing trips he made to deliver bags of cash to government officials from businessmen (mostly in construction, energy and transportation sectors) who were awarded lucrative government contracts (or subsidies in the case of transportation) in exchange, to a journalist (Diego Cabot of La Nación) who subsequently alerted the authorities before publishing the contents. Ironically, Mr. Centeno worked for the planning ministry (which may explain why he kept a meticulous log of his travails), at the time headed by the dreadful Julio de Vido (also known as El Malo), who already is in jail for other corruption cases. The bribes amount to US$ 56 million but could be higher (US$ 160 million according to the judge who is leading the investigation). Ultimate recipients of the cash were allies of Néstor Kirchner and Cristina Fernández de Kirchner (CFK), who together reigned the country from 2003 to 2015. The Kirchners liked the delivery service so much that at times they had bags (Louis Vuitton for the lady) delivered straight to their home. Like in Brazil, Argentina has a long history of engrained corruption (no wonder there are so many words in Spanish for bribe: soborno, coima, mordida…) but its judiciary (itself also not always clean) never has been able to hold corrupt politicians and businesspeople to account. For that reason, CFK’s successor, Mauricio Macri, proposed a law in 2016 to expand plea bargains in corruption cases. The law was passed and now might benefit Mr. Centeno. Being a senator, CFK enjoys immunity which only can be lifted by a majority of the Senate.

Taking notes…

Macri’s plea bargain law has the pleasant attribute that collaborators, businessmen or government officials, now rush to the Comodoro Py federal courthouse in Buenos Aires to tell judges their story in exchange for lower punishment. This is because the bargain works on a “first come, first served” basis, which means that if you can not present new facts, you might find yourself left out in the cold, as might happen to Aldo Roggio, a builder with a highly questionable reputation and happy partner of Odebrecht, the Brazilian construction company behind Lava Jato. Mr. Roggio appropriately controls a company that collects garbage in the streets of Buenos Aires; maybe they can bin him as well… Executives of Albanesi, MSU and Techint already testified in court. It is disturbing to see how some of them are out of touch with reality. One person, Mr. Goycoechea (former CEO of Isolux Corsan, a Spanish-owned construction company), said he didn’t consider the payments as bribes “because the money was to be used for political campaigns”. None of Macri’s government officials so far have been directly tainted by the scandal. Only a cousin of the president, Ángelo Calcaterra, has been named. He owned a construction company, Iecsa, which is named in the notebooks. Both Calcaterra and his right hand-man, Javier Sánchez Caballero, were two of the first three business leaders to take plea deals.

We probably only have seen the tip of the iceberg. More awkward news surely will emerge in the coming months, as is what happened in Brazil. We bet that many Perónistas have taken their “fair share” of the loot. Anyway, it is not the first time that evidence of widespread corruption by the Kirchners is revealed. A curious incident happened in June 2016 when José López, former secretary of public works under the Kirchners, was caught in the middle of the night, throwing trash bags full of crisp banknotes, worth about US$ 9 million, over a wall of a convent that housed three elderly nuns. He first claimed to be a church official and then tried to bribe his captors by offering one of the bags. His testimony in court was quite memorable as his lawyer, a former model and cumbia singer (known as the “abogada hot”), claimed he was mentally unfit to stand trial because “he heard voices”. Of course, CFK denies any involvement in the notebook case (as in any previous bribery cases), saying this is another example of the political prosecution she is facing under Macri, painting herself as a victim. She also stated that judge Bonadio, who is seeking rescission of her immunity, is biased “as he was behind five of the six cases against her since her rule ended and was therefore neither impartial nor independent”. It didn’t occur to her that she simply has trespassed the law too often. Given the damaging evidence jotted down in the notebooks and the subsequent confessions of paying bribes by a number of business executives, it is in our view highly likely that CFK will be prosecuted and end up in jail.

Holy cow, I forgot my bag…

Where does this leave Argentina? Clearly, the notebook case does not help to stimulate the economy as investors will be wary to finance infrastructure companies going forward, even though current public works minister, Guillermo Dietrich, said that PPP projects will proceed unless otherwise instructed by court. This may prove to be difficult in practice, but we agree to go after the individuals that were responsible for the bribe payments instead of indirectly punishing workers by blacklisting companies. The economy is likely to go into recession (or at least printing a very low growth number) also because the government has to address the wide fiscal deficit (which also means scaling back infra projects, amongst others). Although a recession rarely is a crowd pleaser, it is an unfortunate and unavoidable consequence of addressing the unsustainable twin deficit that Argentina is facing. A drop in activity at least will balance the current account. Hopefully, we see moderate growth next year.

Politically, CFK is toast. We think this extends to Perónismo as surely many operators have taken cash (Sergio Massa, raise your hand). In any case, Perónismo clearly has not done anything good for the poor, as they always claim they do, by having caused high inflation (which hurts the poor most) and filling their own wallets instead of using the money to build the country. Macri should be able to explain this and secure his re-election next year. Otherwise, he should handover to his excellent governor of Buenos Aires province, Mariá Eugenia Vidal, to ensure that Argentina can continue to benefit from his sensible policies, which ultimately will change the country for the better. With CFK’ s crimes exposed, victory should be in the bag…