What Makes Strong Federalism Seem Weak?

Fiscal Resources and Presidential–Provincial

Relations in Argentina
Allyson L. Benton*

This article revives an unresolved political debate now masquerading as an empirical puzzle: how
can we characterize the nature of Argentine federalism when recent presidential administrations
support conflicting conclusions about it? Carlos Sau¤l Menem (1989^1999) easily pushed through
policy changes with the support of governors and provincial delegates in congress, implying that
federalism is weak. Fernando De la Ru¤a (1999^2001) faced considerable provincial and congres-
sional opposition, implying that federalism is strong. To resolve this puzzle, I recast federalism in
terms of its economic context. I argue that economic growth renders presidential^provincial
relations positive-sum, leading to intergovernmental cooperation and the appearance of weak
federalism. Economic decline turns presidential^provincial relations zero-sum, raising intergovern-
mental conflict, and the appearance of strong federal institutions.

The ill-fated presidency of Argentine Fernando De la Rúa of the Unión Cı´vica Radical
(UCR) (December 1999 to December 2001) has led scholars and pundits alike
to speculate about the capacity of Argentine presidents to correct this country’s
structural economic weaknesses. De la Rúa was forced to flee the presidential palace
just 2 years into his term as growing economic crises led to widespread citizen unrest.
Though popular opposition to economic reforms contributed to President De la
Rúa’s inability to implement needed policy measures, there is growing consensus that
federal institutions were more important for impeding policy change. Most scholars
now agree that excessive provincial spending undermined national macro-economic
stability and that De la Rúa was unable to change the fiscal behavior of provincial
governments due to the considerable political autonomy reserved to them in the
constitution (Remmer and Wibbels 2000; Wibbels 2000).
Despite evidence that Argentine presidents appear to be powerless to curb
provincial leaders, analyses of other presidential administrations support different
conclusions about the nature of Argentine federal rule. Scholars have often used the

*Centro de Investigacio¤n y Docencia Econo¤micas (CIDE); allyson.benton@cide.edu, allyson.benton@gmail.com

Publius:The Journal of Federalism volume 39 number 4, pp. 651^676

doi:10.1093/publius/pjn032
Advance Access publication 4 November 2008
! The Author 2008. Published by Oxford University Press on behalf of CSF Associates: Publius, Inc.
All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.
652 A. L. Benton

presidency of Carlos Saúl Menem of the Partido Justicialista (PJ) (1989–1999) to

highlight the influential position of presidents in Argentina. Menem implemented
radical economic reforms that negatively affected most provincial economies with
little interference from provincial leaders or their congressional delegates. The
constitutional powers and economic resources reserved to Argentine presidents are
said to have enabled Menem to dominate other levels and branches of government,
implying the existence of strong presidential but weak federal institutions.
Recent administrations thus support conflicting conclusions about presidential–
provincial relations in Argentina, something that not only reflects disagreement
about the empirical causes of De la Rúa’s political downfall and of Menem’s relative
political success but also a larger theoretical debate about the nature of intergov-
ernmental relations in this country. I address this empirical puzzle by first resolving
the theoretical debate. I explain how defining Argentina’s federal institutions as
strong or weak to understand the success or failure of prior administrations in
undertaking policy change begs the question of how presidents facing remarkably
similar political environments—De la Rúa and Menem each assumed office with
48 percent national support and 45 percent support in congressional elections—and
institutional contexts—federal institutions were largely unchanged between the
administrations—could face such different political ends. I argue that changing
economic conditions affect Argentine federalism in different ways, leading to var-
iation in the prospects for intergovernmental and thus inter-branch cooperation and
the direction of policy change. When national leaders have access to plentiful fiscal
resources to transfer to provincial governments, governors are less likely to interfere
with presidential policy plans, making federalism appear weak, even in systems with
technically strong federal institutions. When presidents are unable to provide fiscal
benefits to provinces, provincial leaders can use the powers reserved to them in the
system to undermine presidential policy initiatives and even push through pro-
vincially oriented policies contrary to national interests, making presidents appear
weak and federal institutions strong.
The analysis here thus dusts off a longstanding political–institutional debate about
the nature of Argentine federalism but recasts it in political-economy terms. I argue
that the functioning of federal institutions in Argentina, and elsewhere, cannot be
fully understood in isolation; federal institutional structures, and their effect on
policy outcomes, must be analyzed within each country’s shifting economic context.
My approach thus differs from most prior studies of Argentine federalism, which
have tended to focus on analysis of institutions alone, even if they are designed to
explain economic and policy outcomes, and which always cast federalism as a zero-
sum presidential–provincial game. According to prior research, presidential success
in pursuing national policy objectives occurs thanks to instances of provincial frailty
or governors’ failure to act collectively; presidential failure is the result of provincial
strength or successful inter-provincial cooperation. Instead, I argue that plentiful
What Makes Strong Federalism Seem Weak? 653

fiscal resources turn presidential–provincial relations positive-sum, leading to inter-

governmental cooperation and the illusion of weak federalism in the face of presi-
dential power, especially when presidential objectives conflict with the interests of
provincial leaders. Limited fiscal resources turn presidential–provincial negotiations
zero-sum, a game that provinces have the capacity to win, leading to the appearance
of strong federal systems and weaker presidential powers.
Understanding the economic conditions under which Argentina’s federal bargain
is zero- and positive-sum also helps resolve the empirical puzzle motivating this
study. De la Rúa’s critical fiscal situation meant fewer resources available to negotiate
with provincial leaders, raising intergovernmental conflict and encouraging local
leaders to impede presidential policy goals in congress. Plentiful fiscal financing
during Menem’s rule turned presidential–provincial relations more cooperative,
allowing him to undertake badly needed policy change that was against the economic
interests of provincial governments but with the tacit support of provincial leaders
and their congressional delegations. To build this argument, I proceed as follows:
first, I discuss the theoretical debate about Argentine federal institutions and then
their basic structure in this nation. I then build the argument and discuss the cases
under study. Three case studies of federal relations under Menem, De la Rúa, and
President Néstor Kirchner follow.

Argentine Federal Institutions in Theory and Practice

There has been a proliferation of studies in recent years demonstrating the important
role of provincial politics in shaping national parties, politics, and government in
Argentina while another trend highlights the power of national political leaders.
Several scholars have noticed, for example, that thanks to the highly federalized
nature of this country’s electoral system, most electoral competition occurs at
provincial levels (Jones 1997). Provincial party leaders are responsible for composing
party lists and running campaigns for the national congress, provincial governments,
and municipal offices. Given that local party bosses manage the careers of most
politicians in the system, national legislators tend to choose committee assignments
based on the wishes of provincial party leaders more than any other political criteria
(Jones 2002; Jones et al. 2002). Such studies support contentions that De la Rúa was
weak in the face of powerful provincial opposition to policy reform, leading to
economic crisis and his early political demise.
Studies about the ability of national party leaders to enforce party discipline in the
national congress, in contrast, demonstrate the strength of national politicians over
congressional and local interests (Molinelli 1991; Mustapic 2000). Research on
presidential decrees, prompted in part by Menem’s centralized policy-making prac-
tices, depicts a concentration of power in the national executive, with presidents
controlling most aspects of public policymaking even at the expense of provincial
654 A. L. Benton

governments (Rubio and Goretti 1998). Analysis of the national executive’s power of
federal intervention in provincial affairs and the ability for the national congress to
reject provincial constitutions also supports arguments about the strength of national
leaders in relation to local ones in Argentina’s federal system (Macdonald 1942;
Rowe 1921).
Empirical research to date about Argentine federal institutions thus leaves us
wondering about the exact nature of federal institutions in this country and whether
and how they have changed over time. However, this theoretical debate is driven
more by empirical variation in presidential–provincial relations than by any var-
iation in the country’s federal institutions. Indeed, this empirical variation has left us
asking the wrong theoretical question: whether Argentine presidents are strong
or weak in the face of powerful provincial politicians? Given that federal institu-
tions have not changed significantly but presidents have enjoyed markedly different
relationships with provincial governments, the focus on measuring the institu-
tional strength of presidents relative to provinces—usually conducted to explain
some political or policy outcome—seems misplaced. It is worth taking a step back
and thinking about other features of Argentina’s political and economic system that
interact with federal institutions to produce different presidential–provincial political
games.
Before moving to the argument, a description of the main components of
Argentine federalism is in order. According to the 1853 and 1994 Constitutions,
democratic government is federal and organized into executive, legislative, and
judicial branches. Between 1853 and 1994, presidents were elected for 6-year terms by
an electoral college and could not be immediately reelected. Since 1995, presidents
have been popularly elected by qualified majority, while the term was reduced to
4 years with one immediate reelection. First round election requires a 45 percent
majority, or 40 percent in the event of a gap greater than 10 percent between the
top two contenders. Otherwise, a runoff is held. A senate represents Argentina’s
twenty-three federal districts (provinces) and the Federal Capital. Until changes were
made in the 1994 Constitution, each provincial legislature elected two senators. After
constitutional reform, three senators have been directly elected by provincial popular
vote; the plurality party winner elects two senators and the runner up the third. The
257 seats in the Chamber of Deputies are distributed among provinces according to
population, but less populated provinces are over-represented since every province
has at least five deputies. Deputies serve 4-year terms. There are no reelection
restrictions for legislators.
Provinces enjoy substantial electoral, policy, fiscal, and political autonomy
from the national government. Provinces have the right to adopt their own
constitutions and to establish representative governments that consist of elected
governors, legislatures, and judiciaries. Provincial authorities choose rules for electing
provincial governors and legislatures, leading to a variety of electoral systems.
What Makes Strong Federalism Seem Weak? 655

Provincial governments retain all powers not delegated to the federal government in
the constitution, including the right to levy and collect some taxes and make policy in
a variety of areas. They are able to contract loans and issue bonds, and to create their
own utilities, enterprises, industries, and banks. Provincially appointed bureaucracies
administer local policy initiatives and often control the implementation of national
policies in their districts. Provincial authorities are responsible for creating and
financing municipal governments.
Since the 1990s, provincial and municipal governments have accounted for
between 50 percent and 60 percent of total governmental spending. Most provincial
financing comes from federal transfers. Excluding the Federal Capital, federal
transfers represent on average 75 percent of total provincial financing. Since the mid-
1990s, revenues collected under the federal tax revenue sharing system have
accounted for about 70 percent total transfers going to local governments. The
revenue sharing system includes a series of taxes collected by the federal government
that are then shared between the federal and provincial levels. The revenue sharing
system gained constitutional status in 1994, but a law predating the constitution still
governs the distribution of resources in the system. The federal government takes a
42.44 percent cut of taxes falling under the revenue sharing system, 56.66 percent go
to the provinces, and 1 percent is reserved for a presidential slush fund called national
treasury grants. Revenue sharing funds are not earmarked and can be spent by
provincial governments according to their policy objectives.
Provincial governments are responsible for overseeing elections for national offices
because provinces serve as Argentina’s principal federal electoral districts. Provincial
leaders control the composition and order of party lists used to elect representatives
to the national Chamber of Deputies. During the 20th century, provincial legislators
elected representatives to the Senate. Although senators have been directly elected
since 2001, provincial elites remain prominent players in choosing senatorial candid-
ates and in running provincial electoral campaigns. Provincial elites also play a
central role in the election of national presidents. Until 1994, the national executive
was elected by an electoral college, with provincial leaders controlling the slates of
electors and their votes (Molinelli 1991). Since 1995, the importance of local party
branches and local political dynamics for national politics has led presidential
hopefuls to seek the support of governors and local party leaders during internal
nomination and general election processes.
Politicians aspiring to national and provincial office thus must have the province
as their principal point of focus (De Luca, Jones, and Inés Tula 2002; Gibson and
Calvo 2000; Jones 1997; Jones and Hwang 2005; Levitsky 2003). It is thus not sur-
prising that parties are organized along federal lines. Local party branches compose
their own constitutions and party platforms, elect their own party officers, and
maintain their own membership lists. Local party organizations are responsible for
party lists for both local and national elections. Provincial party leaders are allowed to
656 A. L. Benton

negotiate with other local party branches to run joint lists in local and national
elections, with coalitions varying by province. There are also numerous provincial
parties, with these parties often becoming major players in local politics and even
winning gubernatorial races. As a result, local party systems have emerged that
operate independently from national ones, leading to the characterization of national
politics as the aggregation of local party systems.
Because provincial leaders shape the career paths and electoral fates of their
representatives to the national congress, they carry significant sway over congres-
sional delegations and national policy outcomes (Jones and Hwang 2005). In fact,
the influence of local party leaders over political careers has led national legislators
to choose committee assignments based on provincial leaders’ wishes (Jones 2002).
To protect their power, provincial bosses rotate politicians through different public
offices, preventing politicians from building long congressional careers, policy
expertise, or independent bases of support (Jones et al. 2002). Indeed, when Argentine
provincial gubernatorial elections are concurrent with those for the national Chamber
of Deputies, provincial contests have a strong, negative impact on the level of
multipartism at the national level, demonstrating the important role of local politics
in national processes (Jones 1997).
There is a growing literature analyzing how Argentine federalism affects policy-
making and the economy. Spiller and Tommasi (2003) show how Argentina’s federal
institutions reduce the ability of politicians to construct efficient inter-temporal
exchanges, leading to suboptimal economic policy outcomes. Several authors discuss
how federalism has resulted in Argentina’s inefficient and costly fiscal federal regime
(Saiegh and Tommasi 1998; Tommasi 2002; Tommasi, Saiegh, and Sanguinetti 2001).
Jones, Sanguinetti, and Tommasi (1999) argue that Argentina’s fiscal and institutional
federal system leads to over usage of common pool fiscal resources by provincial
governments and to excessive provincial spending. Taken together, these authors’
research focuses on analysis of federal institutions and their impact on economic
policy outcomes, implying that any measures undertaken to change the direction of
economic policy must begin with reforms to Argentina’s federal institutions.
While it may be true that Argentina’s federal institutions undermine efficient
policymaking, it is important to recall that these institutions have undergone very few
changes over the years even though the nature of presidential–provincial relations has
varied dramatically. President Carlos Saúl Menem (PJ) dominated provincial gov-
ernments, built stable coalitions in congress from provincial delegations, and was
thus able to undertake radical, nationally biased policy change, even at the expense of
provincial economic interests. President Fernando De la Rúa of the UCR, in contrast,
was unable to rule over provincial leaders and therefore faced nearly constant
congressional stalemate from provincial delegations opposing measures contrary to
local interests. Most recently, President Néstor Kirchner (PJ) (2003–2007) was able
to tame provincial leaders and bring their congressional delegations on board for
What Makes Strong Federalism Seem Weak? 657

a series of significant political reforms, even measures that reduced the role of
provinces in policy-making processes.
This article is designed to explain such variation in intergovernmental relations
while fitting within prior studies about the effect of Argentine federalism on policy
outcomes. In so doing, it highlights something that scholars have not yet addressed:
how a nation’s economic environment interacts with federal institutions to affect
presidential–provincial relations and thus policy outcomes. As a result, rather than
placing the lion’s share of explanatory power on federal institutions, this article
highlights the additional contribution of the economy to presidential–provincial (and
thus congressional) relations in federal systems.

Fiscal Resources and Presidential^Provincial Relations

To explain presidential–provincial relations in Argentina, I analyze variation in each
administration’s underlying economic situation. I argue that, even in a context of
strong de jure federal institutions, fiscal resources are critical for a president’s capacity
to maintain cooperative relationships with provincial governments and to build
support from congressional delegations to push through national, as opposed to
provincial, policy priorities. Policy outcomes in federal systems often range from
those favoring national (presidential) interests at the expense of provincial ones
to those favoring provincial interests at the expense of national (presidential) ones.
This is particularly true for the types of economic policy measures that have been
discussed and undertaken in Argentina since the debt crisis in the 1980s. Policies
favoring national macro-economic stability necessarily reduced benefits going to
provinces. Policies favoring provincial economic development undermined national
economic stability. In such a context, presidents with great policy leverage in the
system will usually choose policies that favor national over provincial interests, while
presidents with lower leverage in relation to provincial leaders end up with policies
that favor provincial interests at the expense of national ones.
When national leaders oversee the transfer of sizeable fiscal resources to provincial
governments, thanks to growing economies, high tax revenues, or periods of fiscal
windfalls, governors are less likely to interfere with presidential policy plans and will
pressure their congressional delegations to support presidential programs, even ones
that stand to hurt their interests. Given that most public spending in Argentina—and
in Latin America more generally—occurs pro-cyclically, the typical budget constraint
governing policy negotiations between presidents and provinces is missing in
such contexts as improvements in the general economic climate raise the level of
fiscal resources available in the system and thus expand the government’s annual
projected budget. A strong economy combined with rising public spending can also
have positive effects on presidential popularity, facilitating presidential–provincial
negotiations and thus presidential–congressional relations. As a result, plentiful fiscal
658 A. L. Benton

resources turn presidential–provincial relations into a positive-sum game, leading

to the appearance of weak federal institutions as presidents more easily push their
nationally oriented policy programs through congress.
Declining fiscal resources, in contrast, give the appearance of strong federal
institutions. Economic slowdowns and lower tax collections lead to falling budgetary
resources and thus rising budget constraints compared to years with better economic
performance, adversely affecting presidential–provincial relations. When presidents
are unable to provide fiscal benefits to provincial politicians, federal institutions
undermine presidential capacity to exact policy change. Provincial governors and
their congressional delegations prefer to protect their positions, preventing presidents
from undertaking any policy change that might hurt their political and economic
interests. Limited fiscal resources in a context of provincial political autonomy turn
presidential–provincial negotiations zero-sum, a game that provinces have the
capacity to win at the expense of presidents, especially in systems with de jure strong
federal institutions. Bad economic times also reduce presidential popularity, hurting
presidential efforts to negotiate with provincial leaders and congress.
The principal explanatory variable is the capacity of presidents to reward
governors with fiscal resources, measured here as the size of federal transfers. The
dependent variable is the strength of presidents relative to provincial governments,
measured as the capacity of presidents to build support for nationally oriented policy
goals both among provincial leaders and among provincial delegations in congress.
Though it is possible to observe and measure the main independent variable, values
of the dependent variable are more difficult to ascertain. Interactions between
national and provincial executives frequently occur away from the public eye, while
most policy negotiations between presidents and provincial congressional delegations
occur prior to the introduction of legislation to congress, with provincial leaders
playing a key role in directing national legislators’ activities (Jones and Hwang 2005;
Jones et al. 2002). As a result, the precise nature of intergovernmental relations
at any point in time is difficult, if not impossible, to observe and measure in a
systematic way.
Difficulty in measuring the dependent variable does not mean that the argument
cannot be tested systematically. Rather than focusing on observing presidential
capacity with regard to governors directly, I derive testable expectations of the
argument for expected policy outcomes to evaluate its explanatory power. If the
relationship between fiscal resources and intergovernmental relations is correct, we
should observe predictable variation in the presidential–provincial balance in policy
outcomes that depend on the nature of the economy. That is, good economic times
should raise the policy leverage of presidents over provinces and help them achieve
policies aimed at satisfying national over provincial interests as they are able to confer
benefits to provincial leaders to compensate them for any national bias in policy
outcomes. The extra fiscal resources available in the system enable provincial
What Makes Strong Federalism Seem Weak? 659

governments to cover the economic and political costs of supporting nationally

biased policy outcomes, characteristic of a positive-sum game. Bad economic times,
in contrast, reduce the level of resources available to both presidents and provinces,
so presidents will be unable to compensate provinces for the costs of nationally
oriented policies. In such a context, provinces can either block presidential initiatives
or go even further and push for provincially oriented policies in congress. However,
falling tax revenues mean that it is unlikely that the national or provincial gov-
ernments can count on the resources necessary to finance provincially oriented
policies, leaving both levels of government to bear their fiscal costs, characteristic of
a zero- or even negative-sum game.
Recasting the argument in terms of its implications for intergovernmental bias in
policy outcomes leaves us with two specific testable expectations. First, if fiscal
resources strengthen the leverage of presidents relative to provincial governments, we
should see presidents passing policies that are contrary to the interests of provincial
leaders during periods of economic growth, high tax collections, and federal fiscal
windfalls. The availability of plentiful fiscal resources increases the leverage of
presidents in the system and gives rise to the appearance of strong presidentialism
and weak federal institutions. Second, economic stagnation or recession, falling
federal tax collections, and federal fiscal shortfalls should result in the policy status
quo or in policies that benefit provincial governments. Political stalemate might
occur when provincial leaders refuse to support presidential initiatives contrary to
their interests or when presidents decline to present proposals to congress knowing
that provincial delegations will not support them without costly side payments. Bad
economic times might also lead presidents to support policies that benefit provinces
in an attempt to win provincial support on other legislation. Either way, fiscal distress
increases the leverage of provincial leaders in the policy-making process and gives rise
to the appearance of strong federal institutions, even if pro-provincial policies end up
with insufficient financing down the line.
Before proceeding, it is important to note that the president’s incentive to increase
federal transfers to provincial governments during good economic times to build
provincial support or his inability to prevent provincial governments from impeding
national policy initiatives or enacting provincially oriented policies during bad
economic times could lead to the conclusion that provinces are strong relative to
presidents under all economic contexts. According to this logic, provinces are strong
because they demonstrate the capacity to extract fiscal or policy resources, regardless
of the economic context. However, policy and fiscal resources are not substitutes,
since policy needs financing, whereas fiscal resources (like federal transfers) need not
be attached to specific policy priorities (like unearmarked transfers). This is so
particularly during times of economic and fiscal distress where governments are often
left without funds to finance preexisting policy priorities, let alone new ones. The
inability for provinces to extract fiscal resources from national governments under all
660 A. L. Benton

economic circumstances demonstrates important variation in their political leverage

and thus in the apparent strength of federal institutions.

Case Selection and Rival Hypotheses

Four case studies are used to evaluate the argument and its testable expectations. The
cases include Carlos Menem’s (PJ) first and second presidential terms, and the
presidential terms of Fernando De la Rúa (UCR) and Nestor Kirchner (PJ). Nearly all
administrations analyzed here fall under the jurisdiction of the 1994 Constitution,
with only the first several years of Menem’s first presidential term governed by the
former document. This allows me to control for the effect of federal institutions and
to isolate the impact of changing economic conditions on intergovernmental rela-
tions. To the extent that the first years of Menem’s first presidential term might not
be comparable to later years, most of the nation’s institutional structures affecting
intergovernmental relations remained unchanged with the 1994 Constitution. Even
so, some scholars argue that the new constitution dramatically increased the power of
provinces in the system, but it is important to note that the new document also
introduced measures benefiting presidents with regard to provinces.
From the provincial perspective, the 1994 Constitution allows for the immediate
reelection of presidents, something that has encouraged provincial governments that
had not already done so in the 1980s and early 1990s to undertake similar changes to
their constitutions. Allowing immediate reelection strengthens the roles of provincial
governors in their provincial political systems and thus their influence at the national
level (Eaton 2005). The new constitution also required that revenue sharing pacts be
introduced in the senate, increasing the leverage of smaller provinces who share equal
seating in this body (Eaton 2005). The effect of these two measures on provincial
strength is somewhat countermanded by the elimination of the electoral college and
the direct election of senators by provincial legislatures. Both these changes reduced
the role of provincial leaders in the selection of presidents and in senators. Though
I do not exclude Menem’s first term from the analysis, even if we consider it
incomparable to his second due to constitutional changes, three cases still remain for
analysis: Menem’s second term, and the terms of De la Rúa and Kirchner, which
provide enough economic and political variation to test the argument.
The cases also address two rival hypotheses. It could be argued that presidents
unable to compete for immediate reelection lose political leverage over internal party
factions and provincial leaders. Menem’s first term in office has been used as an
example of this phenomenon (see, for example, Eaton 2005). And, Kirchner’s
provincial support would seem to support this conclusion. However, two cases in this
study do not support this hypothesis. First, De la Rúa was eligible for immediate
reelection and thus should have experienced better relations with provincial leaders.
Second, technically speaking, Menem was a lame duck during the first years of his
What Makes Strong Federalism Seem Weak? 661

first term in office before the 1994 Constitution allowed immediate presidential
reelection. Yet, during this lame duck period Menem experienced increasing leverage
over provincial leaders, in fact so much so that he was able to undertake the
constitutional change that allowed his reelection in the first place, thereby reducing
the role of provincial leaders in this process.
That PJ presidents like Menem and Kirchner have appeared stronger relative to
UCR presidents like Raúl Alfonsı́n (UCR) (1983–1989) and De la Rúa could lead one
to argue that the PJ is simply better at ruling over unruly provincial governments and
congress due to its historically strong position in both provincial and national
government. The PJ has been an important force in congress (averaging 45 percent of
seats in the Chamber of Deputies and 54 percent of Senate seats between 1983 and
2005) and has ruled a majority of provincial governments (61 percent between 1983
and 2003) since the return to democracy (and even before this) in 1983. Even periods
when UCR presidents were strongly supported in the Chamber of Deputies (for
example, during the 1999–2001 term when their alliance held 47 percent compared
with the PJ’s 39 percent seats), the PJ always held a plurality of seats in the Senate
and a majority of provincial governments and was in a position to block policy
change. The case study of Menem’s (PJ) second term (1995–1999), however, provides
evidence that partisan politics do not wholly account for presidential–provincial
relations, even if they can improve or aggravate tensions. Menem counted on con-
siderable partisan support in congress and in provinces during his second term but,
in a context of rising economic distress, was unable to capitalize on copartisans to
undertake policy change.

Fiscal Transfers during Menem’s First and Second Terms

Carlos Saúl Menem (PJ) came to office in 1989 in a context of growing economic
crisis and hyperinflation. Table 1 presents key economic indicators from the late
1980s. At the time of the presidential race, GDP was shrinking while inflation was on
the rise, reaching 4,924 percent per year in 1989. Rising unemployment was also a
problem. As a result, voters abandoned the incumbent UCR and threw their support
behind Menem. Menem’s promises to declare a 5-year moratorium on foreign debt
payments, redistribute income to the working classes, and create economic growth
through state regulation and governmental financing appealed to voters hoping for
an end to economic hardship. Menem and his PJ party won 47.5 percent total votes
compared with UCR candidate Eduardo César Angeloz’s 31.9 percent support.
Menem took office in July 1989.
After taking office, Menem reneged on his populist policy promises and intro-
duced radical measures to stabilize and restructure the economy. Nearly all major
reforms occurred during Menem’s first term between 1990 and 1994, particularly
during his first years in office. Measures included programs to privatize state-owned
662 A. L. Benton

Table 1 Selected argentine economic indicators, 1988–2006

Year Annual GDP Annual percent Percent Tax collection Export and international
percent growth change in CPI unemployment as a percent transactions taxes as
GDP a percent GDP

1988 –1.9 387.7 5.9

1989 –6.9 4923.6 7.3
1990 –1.8 1343.9 9.2
1991 10.6 84.0 6.0 18.4 1.03
1992 9.6 17.5 7.0 21.5 1.05
1993 5.7 7.4 9.0 21.6 1.07
1994 5.8 3.9 12.0 21.5 1.12
1995 –2.8 1.6 16.0 20.3 0.81
1996 5.5 0.1 16.6 19.7 0.86
1997 8.1 0.3 13.4 20.6 0.99
1998 3.9 0.7 12.1 21.0 0.96
1999 –3.4 –1.8 13.5 21.2 0.83
2000 –0.8 –0.7 14.7 21.5 0.73
2001 –4.4 –1.5 18.1 20.9 0.64
2002 –10.9 40.9 17.5 19.9 2.05
2003 8.8 3.7 16.8 23.4 3.03
2004 9.0 6.1 13.3 26.4 3.05
2005 9.2 12.3 10.1 26.8 3.07
2006 7.3 12.9 9.1 27.4 3.07

Source: Instituto Nacional de Estadı́sticas y Censos de Argentina (INDEC), Ministerio del

Economı́a, and IMF.

enterprises and utilities; deregulate the economy and eliminate subsidies and price
supports; liberalize external trade; reduce expenditures in health, education, and
welfare services by transferring these responsibilities to provincial governments;
reform and improve the tax system; eliminate restrictions on transactions and
improve market transparency; and reform the financial system to end easy credit
from the Banco Central de la República Argentina (BCRA) (República Argentina
1994). In April 1991, the government introduced the convertibility law that
established a fixed exchange rate with the US dollar. Low inflation, low fiscal deficits,
and market reforms were required to support convertibility.
The result of Menem’s economic reforms was two-fold. Reforms improved the
national macro-economic environment and increased investor confidence, leading to
a surge in foreign direct investment. As shown in table 1, economic growth returned,
inflation was brought under control, tax collections grew, and unemployment fell.
What Makes Strong Federalism Seem Weak? 663

However, Menem’s nationally oriented policies also undermined the economic basis
of most provincial economies. Exchange rate convertibility restricted the ability of the
BCRA to cover provincial debts and the elimination of economic subsidies hurt local
economies. Throughout the 20th century, provincial economies had been protected
by policies supporting both import-substitution industrial and agricultural produc-
tion (Sawers 1996). Most products receiving governmental support could not have
survived without subsidies and trade protection (Sawers 1996).
Most reforms were largely an executive branch undertaking, implemented by
presidential decree or with the tacit support of congress. Menem’s key role in pushing
through such radical economic reforms, many contrary to the interests of provincial
leaders, has led many scholars to conclude that Argentine federal institutions are
weak. However, Menem’s relationship with provincial leaders profited from changes
to the revenue sharing system in 1988, prior to his assumption of office, and from
certain benefits brought to provincial governments as a result of his economic
reforms (Eaton 2005, Tommasi 2002). These resources made it easier for provincial
leaders to sign onto measures that stood to hurt their economic interests and to
encourage their legislative delegations to support reform.
Reforms to the revenue sharing system in 1988 conceded the greatest share of
fiscal transfers to provincial governments in Argentine history. Though the provincial
share of revenue sharing resources dropped, absolute funds transferred to provincial
governments increased dramatically. Provincial governors were compensated for
a drop in share with promises of increased future tax collections gained from
improvements to the federal tax administration, as well as guaranteed minimum
monthly payments. The fiscal resources accruing to provincial governments rose
again, however, with the 1992 and 1993 Fiscal Pacts (Tommasi 2002). Negotiations
over these pacts were not easy as provincial leaders were asked to accept additional
cuts in their percent share revenue sharing resources, although in exchange for higher
guaranteed minimum payments (Eaton 2005).
Several provinces were reluctant to accept such cuts that could prove contrary
to their interests during times of national economic distress. However, Menem
strategically used a series of selective incentives to compensate provincial leaders
(Eaton 2005). These included provincial debt relief, tax relief on certain companies
and industries, and the establishment of free-trade zones. Such side payments were
made possible by the federal government’s growing fiscal coffers. That many
provincial leaders were brought on board against their initial wishes underscores the
important role of plentiful fiscal resources for producing positive-sum intergovern-
mental relations. Tommasi (2002) also points out that during Menem’s first term,
structural reforms improved the fiscal position of provincial governments as changes
to the federal tax structure raised the amount of taxes falling within the revenue
sharing system, while economic growth improved provincial collections of other local
taxes. Figure 1 shows the dramatic rise in governmental spending in the first years of
664 A. L. Benton

50,000
45,000
40,000
Millions of 2001 Pesos

35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1983
1984
1985
1986
1987
1988

1989
1990
1991
1992

1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Year
National Provincial Municipal

Figure 1 Argentine public spending by level of government, 1983–2004 (millions of 2001 pesos).
Source: Based on data collected from the Dirección de Análisis de Gasto Público y Programas
Sociales—Secretarı́a de Polı́tica Económica.

Menem’s administration. Growth in revenue sharing transfers during this period is

depicted in figure 2. Elites in the poorer interior provinces, in particular, profited
from rising governmental spending and federal fiscal transfers.
Menem’s fiscal pact negotiations raise an important issue about the effect
of revenue sharing resources on presidential–provincial negotiations. Most federal
transfers to provincial governments are legally mandated in some way, thereby
undermining the president’s ability to use such transfers as leverage during
presidential–provincial policy negotiations. However, although presidents cannot
legally change the amount of fiscal revenues transferred to provincial governments,
particularly under the revenue sharing system once a fiscal pact has been negotiated
and signed, the size of each province’s aggregate fiscal take affects negotiations over
subsequent years’ fiscal pacts. During times of economic growth, the amount of taxes
collected falling within the revenue sharing system rises, as do per capita transfers.
This makes negotiation over subsequent fiscal pacts more collegial, with provinces
often willing to accept smaller percent shares of revenue sharing funds, as occurred
under Menem’s first term, in exchange for a higher aggregate take. Moreover,
revenue sharing funds are not the only resources that presidents can transfer to
provincial governments, even if trends in aggregate revenue sharing resources reflect
in national governmental coffers more generally. Presidents have multiple tools at
their disposal to confer fiscal benefits on provinces, several of which are mentioned
above, while one of the best known discretionary funding sources include national
What Makes Strong Federalism Seem Weak? 665

600

500
Transfers Per Capita

400

300

200

100

0
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994

1996
1997
1998
1999
2000
2002
2003
2004
2005
2006
1995
Year
Pampas Interior

Figure 2 Federal tax revenue sharing resources transferred to provincial governments in

Argentina, 1983–2006 (average per capita transfers in US dollars).
Note: Interior provinces include Catamarca, Chaco, Chubut, Corrientes, Formosa, Jujuy, La Rioja,
Mendoza, Misiones, Neuquén, Rı́o Negro, Salta, San Juan, San Luis, Santa Cruz, Santiago del
Estero, Tierra del Fuego, and Tucumán. These provinces have suffered from lower GDP per capita
and higher unemployment than the wealthier Pampean provinces where most industrial
development occurred. The Pampas includes the provinces of Buenos Aires, Córdoba, Entre Rı́os,
La Pampa, and Santa Fe. The urban Federal Capital is often included along with Pampean
provinces in analyses of the Argentine regions.
Source: Based on data collected from the Ministerio del Interior

treasury grants, which are widely known for their political assignation as noted by
Gibson and Calvo (2000).
The ability for Menem to elicit provincial cooperation in some policy areas does
not mean that provinces always fell in line with national policy priorities. Though
frequently encouraged to accept national policy measures contrary to their interests,
the fiscal resources and side payments delivered to them in exchange for their
support in national policy debates enabled provincial leaders to defy these same
policies at provincial levels when they had the policy authority to do so. For example,
increased transfers enabled provincial governments to raise public sector spending
(as shown in figure 1), replace lost federal subsidies to a certain degree to key
economic sectors and industries, and raise provincial public sector employment. In
fact, the provincial share of total public sector employment jumped dramatically after
666 A. L. Benton

1989, going from 55 percent to 85 percent. Provincial governments in the nation’s

most agriculturally and industrially prosperous region, generally located in what is
called the Pampas plains, employed, on average, 32 people per 1,000 residents, while
public sector payrolls in less economically prosperous interior provinces accounted
for, on average, 56 employees per 1,000 habitants (figure 2).
Though provincial governments benefited from fiscal plenty during Menem’s first
term, growing economic recession and declining tax revenues during Menem’s
second term (1995–1999) changed the nature of intergovernmental relations. Toward
the end of the 1990s, the economy slowed, going from 3.9 percent annual growth in
1998 to an annual retraction of 3.4 percent in 1999 (table 1). Unemployment reached
nearly 17 percent in 1996. Argentina’s current account deficit also turned for the
worse, while its increasingly overvalued exchange rate favored imports over
exports, hurting domestic production. Declining economic conditions led provincial
leaders, particularly in the nation’s poorer provinces, to seek to compensate consti-
tuents through increased public spending. Despite large revenue sharing transfers
throughout Menem’s second term, rising economic and political pressures led many
provincial governments to run large fiscal deficits by the end of the 1990s, often
borrowing funds to cover deficits from private banks who accepted revenue
guarantees as collateral (Eaton 2005). Revenue sharing transfers were not enough
to compensate provincial leaders for overall declining economic conditions.
Provincial debt amounted to as much as 7 percent GDP by the end of the 1990s,
further undermining macro-economic stability (Eaton 2005).
Growing economic problems at the national and provincial levels meant that,
despite his party’s privileged position in congress and among provincial govern-
ments, Menem was unable to succeed in passing policy measures to prevent pending
economic recession. For example, provincial leaders refused to accept Menem’s
attempts to pass policies that would reduce provincial spending. During much of
Menem’s second term, his administration sought to eliminate the minimum revenue
sharing guarantees negotiated in prior revenue sharing policy agreements that were
due to expire in mid-1995. However, provincial leaders successfully blocked the
government’s attempts in the Senate. Indeed, despite the government’s worsening
economic situation and fiscal position, provincial leaders were able to force the
federal government to raise minimum revenue guarantees in 1998, rather than reduce
them. As a result of growing economic problems, the PJ lost the 1999 presidential
race to Fernando De la Rúa (UCR) and a considerable share of congressional seats.
Though Menem’s ability to undertake radical economic restructuring during his
first term is often interpreted as evidence of his power over provincial governments,
the fiscal resources channeled to provinces during this time made it possible to build
their acquiescence for reform. Indeed, that provincial governments had the policy
authority and fiscal resources to avoid many national economic reforms and step in
where the federal government stepped out attests to the strength of federal
What Makes Strong Federalism Seem Weak? 667

institutions in Argentina. The positive-sum game created by good economic times

during Menem’s first term tamed provincial opposition to national policy goals by
allowing provincial leaders the fiscal resources necessary to act alone at the local level.
Menem’s cooperative relationship with provincial leaders prior to negotiations over
constitutional changes to allow for his immediate reelection also highlights how a
president’s lame duck status need not reduce his leverage with recalcitrant local
leaders. Times of economic and fiscal plenty can help build support, changing the
nature of intergovernmental relations, even in strong federal systems.
The appearance of weak federalism came to an end during Menem’s second term,
demonstrating how growing economic troubles encourage provincial opposition
to the president and to his nationally oriented economic policy goals. Growing
economic crisis and provincial leaders’ inability to continue to offset economic losses
in their local economies, combined with the federal government’s lack of ability to
deliver badly needed side payments to provincial governments, rendered presiden-
tial–provincial relations more adversarial. This is so despite the fact that Menem’s PJ
continued to control a majority of provincial governments and congressional seats
during this period. Copartisans are reluctant to lend support to presidents unable to
meet their fiscal and economic needs, something that leads to troubled presidential–
provincial relations in a context of strong federal institutions.

Economic Recession and De La Ru¤a’s Failed Presidency

President Fernando De la Rúa (UCR) felt the full force of provincial strength thanks
to his incapacity to compensate provincial governments for economic losses with
federal transfers. De la Rúa came to power in December 1999 through an electoral
alliance between his UCR and the the Frente del Paı´s Solidario (FREPASO) political
coalition. De la Rúa and his coalition won 48.5 percent total popular support
compared with PJ candidate Eduardo Duhalde’s 38.1 percent. Similar to Menem’s
first year in office (before the nation began its economic recovery after the initiation
of economic reforms), De la Rúa had to contend with growing economic problems
upon his inauguration and needed to undertake structural reforms to address them.
Growing economic recession, considerable international debt obligations, and an
over-valued currency required immediate attention. As shown in table 1, the
economy had begun to contract in the mid-1990s, arriving at full recession by 1999.
Tax revenues as a percent share GDP and in real terms continued to fall, placing
government finances in a precarious position and also at the forefront of the new
administration’s agenda. Unemployment was also on the rise in the mid-1990s and
remained high, and with this came certain related social problems.
National and provincial fiscal austerity was required not only to resolve domestic
fiscal problems but also to maintain a favorable international credit rating for
sovereign debt, foreign investment, and the continued support of the International
668 A. L. Benton

Monetary Fund (IMF). However, fiscal austerity also meant significant changes to the
revenue sharing system to reduce funds transferred to provincial governments. This
placed the De la Rúa administration in a difficult position: the loss of IMF and
investor confidence would lead to default on international debt obligations but policy
changes needed to ensure such support would be politically difficult, particularly
during times of fiscal distress when the federal government was unable to deliver side
payments to reluctant provincial leaders. Any adjustments in national spending,
outlined in the annual budget, needed the support of majorities in both congressional
chambers and thus the support of provincial party leaders who guide congressional
votes. A new fiscal pact signed by all provincial governors was the only way to reduce
local spending and heavy federal transfer obligations. Despite dramatic increases in
fiscal transfers during the 1990s, efforts to compensate provinces for lost federal
spending along with newly decentralized education and healthcare responsibilities
had placed many provincial governments on the verge of bankruptcy during
Menem’s second term and federal funds were the principal resource keeping them
afloat by the time De la Rúa reached office.
The economic and political environment was thus stacked against any major fiscal
policy reform that would undermine provincial interests. The Fiscal Pact of 1999 was
negotiated by the incoming De la Rúa administration and signed in December, 4 days
before the new president took office. The federal government agreed to guaranteed
levels of monthly transfers to provincial governments in exchange for the passage
of provincial fiscal responsibly laws that would limit provincial fiscal deficits
(Tommasi 2002). Though the federal government adhered to its part of the bargain,
most provinces did not honor their part, something that required another Fiscal Pact
in 2000 in order to get provincial spending in line with 2001 governmental income
and budgetary expectations (Tommasi 2002). In the 2000 Fiscal Pact, the federal
government agreed to increase the guaranteed amounts transferred to provincial
governments through 2001, 2002, and 2003 in exchange for a commitment by pro-
vincial leaders not to increase primary spending, pass multi-year budgets, increase
transparency of fiscal accounts, harmonize local taxes with federal ones, and support
the passage of a new revenue sharing law by 2001 (Tommasi 2002). The 1994
Constitution required a new revenue sharing law by the end of 1996 but no law had
been as yet (or remains to be) approved. That provincial leaders were able to extract
additional fiscal concessions in exchange for a zero-deficit agreement during this
difficult economic and fiscal period demonstrates the federal government’s lack of
political leverage with them. At a time of falling tax revenues, the additional resources
promised and paid to provincial leaders adversely affected the federal government by
significantly limiting its resources and fiscal room for maneuver during a crucial
economic period (Eaton 2005).
The continued deterioration of the Argentine economy meant that the federal
government was not able to adhere to its transfer obligations by mid-2001, putting it
What Makes Strong Federalism Seem Weak? 669

in arrears with provincial governments. In return, provincial governments rallied

against De la Rúa, filed complaints with the Supreme Court, and brought pressure to
bear on the government through congress by passing legislation requiring new taxes
on financial transactions to fall within the revenue sharing system (Tommasi 2002).
The inclusion of these taxes in the revenue sharing scheme worked against the
national government that now had to share them with provincial governments. The
administration’s incapacity to meet its transfer obligations is in large part responsible
for the lack of a new fiscal agreement with provincial governments for the following
year and for the loss of investor confidence in the government’s ability to meet its
debt obligations that proved disastrous to the Argentine economy and to De la Rúa’s
presidency (Tommasi 2002). Moreover, as mentioned earlier, periods of declining
national budgetary resources make it difficult for both national and provincial
governments to cover the costs of policy outcomes, both nationally and provincially
oriented. In this case, though provinces exacted additional policy (fiscal) conces-
sions from the federal government, these could not be honored by a government
in fiscal distress. As a result, many provinces reneged on their promises of fiscal
responsibility.
Falling fiscal resources led to a dramatic loss in political support for De la Rúa
among governors and among their congressional delegations, and ultimately to
political crisis. De la Rúa’s political difficulties point to the important role of fiscal
resources for building the support of governors and their congressional delegations,
and for the appearance of presidential power in Argentina’s federal system. However,
strong federalism does not have to lead to a president’s political demise. Many
presidents ruling over strong federal systems survive in office alongside powerful
governors, even when faced with political crisis or policy stalemate. However, policy
stalemate during De la Rúa’s administration occurred at an inopportune moment in
Argentine economic history as it sent a clear signal to the international investment
community that Argentina was likely to default on its international debt obligations.
Investment dried up and the economy slipped further into recession, reducing tax
income needed not just for provincial transfers but for meeting international debt
obligations. Discussions over whether convertibility could be sustained led to capital
flight, estimated around $20 billion by December 2001, further lowering investor
confidence and putting additional pressure on the economy. An executive decree
limiting daily bank withdrawals starting on December 3, 2001 partially resolved
capital flight but was detested by Argentines. The inability of the De la Rúa
administration to resolve the policy stalemate led the IMF to halt the disbursement of
funds on December 5, 2001.
De la Rúa’s experience underscores how periods of economic hardship have the
capacity to turn presidential–provincial relations into a zero-sum game, leading to
political stalemate and even to presidential acceptance of policies contrary to national
interests. Moreover, periods of economic crisis and severe fiscal shortfalls can change
670 A. L. Benton

federal–provincial opposition and stalemate into political instability. Economic crisis

led to massive public demonstrations, looting, and a dramatic rise in violent crime. A
national state of siege declared in mid-December 2001 did little to reduce the general
sense of lawlessness. On December 20, 2001, De la Rúa was forced to flee the
presidential palace by helicopter in order to escape protestors banging pots and pans
(known as the cacerolazo) in the Plaza de Mayo. He formally resigned from office the
following day.

Improving Terms of Trade and Kirchner’s Weak Federal System

With De la Rúa’s untimely exit, the presidential banner temporarily passed to the
president of the Senate, Ramón Puerta (PJ), until congress met in joint session
to choose a new president. (Vice-president Carlos Álvarez of FREPASO left office the
previous year.) The Law of Succession (Ley de Acefalı́a) states that only current
members of the congress or provincial governors are eligible to replace a popularly
elected president or vice-president. On December 24, 2001, a majority of congress-
men chose Adolfo Rodrı́guez Saá, the longtime PJ governor of San Luis province.
Rodrı́guez Saá immediately announced a cessation of international loan repay-
ments, totaling over $80 billion, amounting to the largest default on sovereign
debt recorded. Widespread public outcry and riots against several political appoint-
ments led to his resignation 1 week later. The president of the Chamber of Deputies,
Eduardo Camaño (PJ), then assumed office until another congressional vote
elected Senator Eduardo Duhalde (PJ), a former governor, presidential candidate,
and vice-president. Duhalde was sworn into office on January 1, 2002. Duhalde
dismantled the convertibility program, leading to the swift devaluation of the peso.
Presidential elections were called for mid-2003 and the transfer of power on May 25,
2003. In first round elections, Néstor Kirchner received 22.2 percent support, while
former President Menem won 24.5 percent votes, but a runoff was never held as
Menem withdrew.
By mid-2003, every economic indicator spelled another difficult term dealing with
provinces unwilling to accept cuts in federal funds. Duhalde had opted for temporary
measures rather than addressing the fundamental problems plaguing the economy
and governmental finances. The national budget, provincial spending, and the
revenue sharing system were left for Kirchner. Duhalde also made no attempt to
address defaulted debt or international creditors. By the time Kirchner took office,
the economy had contracted by 11 percent in 2002 following 3 years of negative
GDP growth. Low tax collections were also still a problem, as they had not only
declined as a percent share of GDP but also in real terms as well. Inflation was
around 40 percent in 2002 due to the devaluation of the peso that year, though
inflation had fallen somewhat by 2003, and unemployment was still high. Finally,
both national and provincial level spending had declined dramatically, as shown in
What Makes Strong Federalism Seem Weak? 671

figure 1, thanks to the contraction of the economy and shrinking tax collections.
Many Argentines and international observers believed that Kirchner was unlikely
to complete his term.
Despite the nation’s dire economic and political outlook, the economy began to
grow shortly after Kirchner took office. Kirchner benefited from a sharp improve-
ment in the international terms of trade that brought considerable benefits to the
ailing economy. Argentina is a major producer of agricultural commodities like soy
whose prices rose dramatically with rising demand in Asia. Export taxes levied
on these goods as well as on international transactions contributed to federal fiscal
coffers, helping the government run primary surpluses. These revenues were not
subject to the revenue sharing system, thus padding federal rather than provincial
coffers. These resources became critical in gaining leverage over provinces eager for
fiscal transfers. The dramatic drop in debt servicing, thanks to the default when
payments were not made on nearly half of Argentine sovereign debt, and imports,
thanks to devaluation, bolstered the current account. Governmental coffers also
benefited from reduced debt payments, both during the default and after it when
negotiations with debtors concluded in early 2005 (Miceli 2006). Argentine interest
payments went from about 8 percent GDP prior to default to 2 percent in mid-2006
(Miceli 2006). Argentine manufactured goods exports also benefited from the
devalued peso, while small and medium enterprises were given governmental support
and thus flourished amidst the growing economy and low interest rates (Miceli
2006). Economic growth between 2003 and 2006 averaged nearly 9 percent, leading
to a dramatic rise in tax collections, both in real terms and as a percent share of GDP
(table 1). Increased employment and real wages had a positive effect on domestic
consumption and reduced poverty rates (Miceli 2006).
Strong economic performance in a context of rising governmental spending
resulted in a favorable economic environment for provincial leaders. Increased tax
collections meant increased transfers to provincial governments, as shown in figure 1,
as well as a rise in federal spending, particularly ahead of the October 2005 midterm
congressional elections. Of course, governmental spending did not reach levels found
in the late 1990s, but most provincial governments began to run surpluses, as did the
federal government. The positive economic and fiscal environment, both on a
revenues and spending front, helped Kirchner contain provincial leaders and bring
them on board his policy programs. With the tacit or formal support of most
governors and their congressional delegations, Kirchner restructured several taxes,
including the income and value added tax, controlled prices charged by utilities
companies for electricity, water, and natural gas, created a state-run oil company, and
negotiated upward changes to minimum wages and social security payments. He also
challenged the IMF, refusing to sign an agreement with this organization in 2004, and
then paying them off in 2006. He worked with governors and congress to get rid of
Menem-appointed members of the supreme court.
672 A. L. Benton

Good economic times and increased governmental spending paved the way for
Kirchner’s good relations with governors and congress, allowing Kirchner to
undertake policy and political changes contrary to the interests of provincial leaders.
In particular, two measures were approved by congress in 2006 that reduced the
congressional, and thus the provincial, role in the national policy-making process,
thereby undermining Argentina’s strong federal institutions. The first measure
changed the role played by congress in overseeing presidential emergency decrees.
The 1994 Constitution stipulates that presidential emergency decrees should be
regulated by congress. However, congress failed to approve any measures to regulate
them. Kirchner took advantage of this legal vacuum to draft legislation to create a
sixteen-member joint congressional committee to discuss each emergency decree and
make a recommendation on its legality to congress. Both chambers then vote to
uphold or reject the decree 10 days after the opening of the joint committee. If both
chambers chose not to vote or only one chamber rejects the decree, the decree stands.
Requiring both chambers to reject the decree for it to be annulled increases the
policy-making powers of the Argentine president at the expense of congress and thus
at the expense of provincial leaders influencing delegations to this branch.
The second measure approved by congress increased the president’s control over
the national budget. Prior to this reform, congress was the only institution allowed to
shift expenditures within the nation’s annual budget. The new measure transferred
this power to the president, as long as overall budgetary expenditures are not
increased, thereby reducing congressional, and thus provincial, oversight of the
nation’s resources. This measure is ‘‘particularly important because it allows
the executive to channel funds allocated for infrastructure spending (usually made in
the provinces) towards current spending (undertaken by the federal government) and
vice versa’’ (Economist Intelligence Unit).
Argentina’s positive economic and fiscal spending environment was largely
responsible for recent changes to Argentine intergovernmental relations. It is also
responsible for Kirchner’s consistently high popularity levels throughout his term
in office, the PJ’s strong performance in midterm congressional elections in 2005
and in many provincial contests, and the victory of his wife, Cristina Fernández de
Kirchner, in the 2007 presidential race. As long as economic growth and tax
collections remain strong, Kirchner’s wife will continue to dominate the presidential–
provincial game, lending to the appearance of weak federal institutions and presi-
dential strength. In contrast, negative shifts in the country’s economic performance
will undermine President Cristina Kirchner’s position in the federal system.
Favorable economic conditions helped the government avoid difficult economic
reforms, such as the lifting of price controls on utilities and certain consumer goods,
banking sector reform, and provincial financial reform. Indeed, if recent political
changes are any guide, that fiscal plenty can result in additional institutional reforms
to change the nature of intergovernmental relations further to the benefit of the
What Makes Strong Federalism Seem Weak? 673

national executive, serving as a lesson that good economic times not only lead to the
appearance of weak federalism and strong presidentialism but can also be used to
make that appearance institutional reality. Economic conditions thus serve as a
guide to Argentina’s future presidential–provincial relations and its ultimate policy
direction.

Placing Federal Institutions in Economic Context

This article argues that to understand the nature of federal institutions, we must place
them in economic context. Even where federal institutions are technically strong,
certain economic factors can work either to undermine or reinforce them, shifting
the balance of power toward presidents or provinces during times of economic
largesse or distress, respectively. In Argentina, good economic times that led to higher
tax revenues and increased fiscal transfers to provincial leaders created a positive-sum
fiscal game, thereby changing the nature of presidential–provincial relations into one
of cooperation even when de jure federal institutions remained the same. This
occurred during Menem’s first term and served to benefit the administration of
Néstor Kirchner. Though provinces are still technically important according to the
nation’s federal system, they have been apt to yield to presidential policy priorities
when compensated fiscally and economically for their support.
In contrast, falling tax collections and declining transfers to provincial gov-
ernments turn presidential–provincial relations more adversarial, reflecting the zero-
sum fiscal and political environment that bad economic times create. This occurred
during De la Rúa’s short time in office and during Menem’s second term. During the
De la Rúa administration, declining and uncertain transfers to provincial leaders
caused by the nation’s sudden economic downturn led provincial governments
to take a more aggressive stance toward the president and oppose any plans for
nationally biased policy reform, even reforms that stood to save the country from
defaulting on its sovereign debt, leading to political stalemate in congress and De la
Rúa’s early political demise. Indeed, the lack of reform to provincial spending means
that any future president could find him or herself in a similar situation in the future.
A shift in external conditions caused by a decline in the terms of trade and/or a
revaluation of the peso in light of inflationary pressures stands to reduce exports and
thus economic growth, tax revenues, and the positive-sum federal game, making
federal governance tougher.
The analysis of Argentina demonstrates that presidential–provincial relations in
strong federal systems are affected by economic context. Only future research will tell
us whether this is the case for other strong federal systems like those in Brazil,
Canada, Germany, the United States, or Mexico (whose federal system is increasing
in strength with democratization and decentralization). It is possible that economic
growth only placates provincial leaders in strong federal systems when most
674 A. L. Benton

provincial revenues are collected by federal governments and then redistributed

according to legal formulae, as in the case of Argentina, Brazil, and Mexico. In
systems where local leaders are responsible for collecting taxes to finance local
expenditures, periods of economic growth might undermine relations between
presidents and provinces while periods of economic decline improve them. In cases
of economic growth, provincial leaders economically and politically empowered by
their tax collections might seek to rival federal rule, rather than succumb to it, to
increase their leverage in system. Periods of economic decline, in contrast, might
weaken all levels of government, particularly provinces counting on their own tax
collections, thereby producing more amiable presidential–provincial environments as
both sides suffer and address economic decline. Regardless, future study of how fiscal
financing interacts with federal institutions is needed to further our understanding of
these complex systems in order to explain why in some cases they generate political
stalemate and in others important policy change.

Acknowledgements
I would like to thank Juan Pablo Micozzi and Juan Olmeda for comments on early
drafts of this article. Their enthusiastic help is very much appreciated. I would also
like to thank three anonymous reviewers whose comments greatly improved this
work. All errors or omissions are my own.

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