Something extraordinary is happening in Guatemala

Massive corruption in the developing world shouldn’t raise any eyebrows, but it is a rare thing indeed when sitting top-level officials actually get punished for it. This is becoming a real possibility in Guatemala, whose people have long lived under the rule of a corrupt and predatory elite. In recent weeks, dozens of powerful officials have been arrested for various offenses including their alleged involvement in bribery, influence-peddling, and a large-scale customs fraud nicknamed La Linea (after a telephone hotline used by the reported conspirators). The fire is moving closer to the feet of president Otto Pérez Molina, whose son-in-law, Gustavo Martinez, also an important official, was arrested last week for allegedly using his access to the president to solicit bribes.

That such influential incumbents are facing the prospect of punishment at all is the result of the International Commission Against Impunity in Guatemala (CICIG), a U.N.-backed body set up in 2007 to investigate organized crime and train local prosecutors. Having already prosecuted drug barons and an ex-police chief accused of operating a death squad, it is now training its sights on high-level government corruption.

In April, just as the CICIG was announcing its most serious charges yet – those relating to La Linea – Mr. Pérez was deliberating whether to renew the body’s two-year mandate. Thanks to pressure from the United States, he agreed to extend it.

It all goes to show that, in marginal countries where none of the U.N. Security Council members have much interest in helping incumbents stay in power, the possibilities for real justice are indeed endless.

For more on what’s happening in Guatemala along with similar developments in neighboring Honduras, see Louisa Reynolds’ recent article in Foreign Policy (“Are We Witnessing a Central American Spring?”).

Policies First, Institutions Second: Lessons from Estonia’s Economic Reforms

The collapse of communism ushered in widespread hopes that the countries of Eastern Europe would develop democratic regimes and Western-style capitalism. While democracy is alive and well in many countries, most of their economies remain dominated by corrupt and predatory elites who systematically undermine the rule of law.

There is perhaps one exception to this rule, and that is Estonia. A forthcoming article by M. Steven Fish and yours truly locates the roots of Estonian exceptionalism in the policies enacted by its early post-communist governments. These policies hardened budget constraints on business actors – that is, they eliminated the subsidies, sweetheart loans, tax breaks, and other privileges on which political capitalists thrive. Having marginalized opponents of the rule of law, Estonian leaders were free to build an effective set of property rights institutions that make their country the envy of its post-communist peers.