Ask experts why Argentina is in disarray, and many will point a finger at the nation’s antiquated and corrupt provincial system. Despite regional differences, nearly all have the same problems as Corrientes–an impoverished population, padded state payrolls, financial mismanagement and political cronyism. The 24 provinces account for 3 percent of Argentina’s economic output but suck up half of all federal spending. While the nation is struggling to recover from a debilitating depression, the provinces have run up a collective $2 billion budget deficit. Ten of them finance their deficits by printing their own money–a practice the IMF frowns upon, to say the least.

But although weak economically, the provinces control valuable votes in Congress–and local party machines can swing enough voters to help decide a presidential contest. For such services, political fixers like Martinez Llano have been able to demand–and win–costly federal largesse for their constituents. It’s pork-barrel politics at its most extreme–and most economists agree that until that nexus is broken, struggling Argentina is unlikely to solve its recurring economic woes. (The IMF has made provincial reform one of its priorities in bailout talks with President Eduardo Duhalde’s government.) “A lot of provinces are simply not viable, politically or economically,” says Buenos Aires-based political scientist Matteo Goretti. “It is impossible to resolve the country’s problems without resolving the problems of federalism.”

That won’t be easy, for Argentina’s patronage-dominated provincial system dates to the 19th century–and hasn’t changed a whole lot since. After Argentina formally declared independence from Spain in 1816, the new government spent decades locked in a civil war with powerful feudal landowners, or caudillos, who brutally resisted any challenge to their authority. That is still the case today; many provincial leaders are large, influential landowners. As a result, Argentina’s best-laid economic plans have consistently been wrecked by what Goretti calls this “ancient political reality.”

In Corrientes, as in other provinces, the patronage system revolves around the local government. Though the bloated bureaucracy is inefficient and indebted, efforts to cut back on it have proved fruitless. Since 1983, the province’s payroll has tripled to about 45,000 workers, while total debt has soared from $6 million to $565 million. Three quarters of the budget is devoted to government-worker wages rather than social programs. The Education Department is even worse off: teacher salaries swallow a whopping 95 percent of all education spending. And yet teachers are currently working only three days out of five because the government is two months behind with their pay. “The feudal nature of this province is a product of its culture and history,” says Martinez Llano. “That is not going to be easy to change.”

If Argentina wants a recipe to resolve this mess, it ought to talk with neighboring Brazil. There, too, powerful regional governors behaved like viceroys for decades, controlling congressional delegations and using state-owned banks to finance their regional follies. In order to approve federal legislation, the Brazilian president often had to succumb to ruinous provincial demands. Tired of being blackmailed by rogue provincial politicians, President Fernando Henrique Cardoso closed down or sold off the state banks, and sponsored a congressional bill to end the federalist free-for-all. Under the Fiscal Responsibility Law, passed in May 2000, governors and mayors are bound to limit their payroll expenses to just 60 percent of what they collect in taxes, with penalties for those who do not comply. By last December, even before the sanctions were in place, 94 percent of the country’s mayors were running budget surpluses. And today, local debts are generally under control.

Owing partly to outside pressure, there have been some attempts at provincial reform in Argentina. The city of Buenos Aires, along with the provinces of Santa Cruz and San Luis, have balanced their budgets. Economic Minister Roberto Lavagna claims the government has signed deals with a majority of the provinces that meet IMF-approved targets for spending cuts. The central government now sends Corrientes $9 million a month, compared with $14 million last year. But experts point out that similar deals aimed at reining in provincial spending have been made–and broken–in the past.

Current Argentine President Duhalde doesn’t have much credibility on this issue. In 1999, when he was governor of Buenos Aires province, the country’s largest, he loosened the purse strings in a failed bid to win the nation’s presidency. His successor, Carlos Ruckauf, did the same–and the province is now heavily in debt. The province’s wages are paid mainly with the local currency, the patacon. “Public finances in the province of Buenos Aires continue to be one of the major Argentine issues,” says Luis Secco, a local economist. Beyond that, virtually all of the leading candidates for next year’s presidential elections are provincial caudillos–including former president Carlos Menem from La Rioja, Jose Manuel de la Sota from Cordoba, Adolfo Rodriguez Saa from San Luis and Nestor Kirchner from Santa Cruz. Since they have in some cases gotten their provinces into a financial mess, it is hard to imagine these men reforming the system.

Is there a long-term solution? Nobody seems to have one in a country where political courage is scarce. The federal government has been dodging any major overhaul of provincial finances since 1985, preferring a patchwork of temporary fixes. It’s done so partly for pragmatic reasons: drastic spending cuts tend to spark protests. Goretti asserts that some small, poor provinces should merge with neighboring ones to create larger regions, eliminating profligate spending. But it’s hard to imagine any caudillo supporting such a radical idea. Rogelio Frigerio, a regional economic consultant, says that Argentina’s provinces desperately need to attract private companies, and through them create new and productive jobs. But incentives are needed, because the infrastructure in most provinces is poor–and because it is more costly to set up new companies in rural areas than in cities. That fact underscores the fundamental economic problem in Argentina. Says Goretti: “We have to decide whether we want to be a modern state like Chile, or a country like Paraguay, where local chiefs install and remove presidents.” Argentina, in fact, seems to have long ago made that decision–and the country continues to suffer for it.