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This Argentine Scandal Couldn't Come at a Worse Time


At first glance, Argentine congresswoman Elisa Carrio appears anything but a dangerous firebrand. Born into a wealthy family in the northern province of Chaco, the former lawyer and constitutional scholar has long kept a low profile. But last year the Radical Party legislator uncovered evidence incriminating Central Bank President Pedro Pou in a case involving money laundering through Argentine and U.S. banks. So Carrio took the information to the authority she believed best equipped to handle it: the U.S. Senate. "I knew I couldn't trust my own country's institutions to investigate," says Carrio.

The scandal unleashed by Carrio's revelations could not have come at a worse time for President Fernando de la Rua. Investor confidence in Argentina remains fragile, despite a $40 billion rescue package arranged by the International Monetary Fund. The economy is barely showing signs of life, complicating the government's efforts to comply with the IMF's stringent budget deficit targets. Meanwhile, the President is scrambling to shore up the crumbling Alianza governing coalition in preparation for midterm elections in October. Factor in the emerging-market jitters sparked by the Turkish devaluation, and it's easy to see why investors are edgy about Argentina's prospects. "If things don't pick up by mid-year, default concerns will resume," says Ricardo Cavanagh, an analyst at Raymond James Argentina.

PUBLIC PRESSURE. For de la Rua, it's little consolation that the evidence of money laundering unearthed by Carrio dates back to his predecessor's reign. Calls for the removal of the central bank president have been mounting. Rather than bow to public pressure, de la Rua is awaiting the recommendation of a Congressional committee that's looking into why Pou ignored warnings that Argentine banks may have been implicated in money laundering. Pou declined to be interviewed for this article.

The fate of Argentina's central bank chief--and de la Rua's ability to govern effectively--may hang on the contents of a dossier Carrio and a colleague turned over to members of the U.S. Senate Permanent Subcommittee on Investigations last May. At the time, the subcommittee was in the midst of its own money-laundering investigation, the results of which were published in February. The report sheds new light on the murky dealings of Raul Moneta, a reclusive businessman who is close to former President Carlos Saul Menem.

Carrio and her associate allege that Moneta's Banco Republica, a now-defunct Argentine bank, laundered millions of dollars in bribes to corrupt government officials during Argentina's privatization drive last decade. Central to the whole operation was Banco Republica's offshore affiliate, Federal Bank Ltd. Registered in Bahamas, Federal Bank had no physical presence aside from a post-office box. Bahamian authorities, who last month revoked the bank's license, maintain that Moneta was a stakeholder. Moneta, who could not be reached for comment, has publicly denied any ownership. But one thing is clear: Thanks to a 10-year correspondent banking relationship with Citibank, Federal Bank was able to quietly move vast sums of money into and out of Argentina. Citibank declined comment on the details of the relationship.

WITCH-HUNT? Documents dug up by Carrio show that Argentina's banking authorities became suspicious about the Federal Bank-Banco Republica nexus as early as 1996. Yet Pou did not order a judicial inquiry into the matter until December, by which time it was known that the U.S. Senate had launched its own investigation.

Despite the accusations of negligence, Pou has his defenders. The head of the Argentine Bankers Assn., Eduardo Jose Escanasy, has warned that a witch-hunt could jeopardize an incipient economic recovery. Yet Argentina's central bank chief wields little power since the country relinquished control of its monetary policy when it pegged its peso to the dollar in 1991.

Nevertheless, investors worry that the scandal will sap de la Rua's dwindling reserves of political capital. That could make it difficult for the President to fend off a bipartisan assault on controversial reforms demanded by the IMF. "Markets want a strong President, but given Argentina's economic problems, de la Rua is in a real quagmire," says Amer Bisat, a portfolio manager at Morgan Stanley Dean Witter in New York.

Ironically, while the President's popularity has plummeted over the past year, Carrio's is soaring. The congresswoman maintains that she is driven not by political ambitions but by a patriotic desire to root out corruption. "Not until we uncover the truth will people's faith in the republic be restored," she says. With so many reputations on the line, doing that won't be easy. By Joshua Goodman in Buenos Aires


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