Modern representative democracy cannot function without political parties, however rudimentary. Parties in turn cannot function without money. The subject of party finance is therefore central to the construction of contemporary democracies. Latin American countries have attempted to meet the challenges of preserving democracy while providing for political parties across three main areas of financial regulation: provision of public finance, regulation of private finance, and limiting campaign spending. In all three areas, transparency (reporting), oversight, and enforcement of existing legal regulations remain important problems for the health of the political system.
In the late 20th century, Latin American countries increasingly turned to public finance as a way of supplementing existing systems of private contributions. This trend seems to have been inspired both by a desire to reduce the inequalities inherent in Latin America’s socioeconomic structure and by efforts to contain and prevent episodes of scandal and undue influence generated by private contributors. Public finance particularly benefits small parties and parties with fewer connections to the wealthy sectors that tend to dominate private contributions. Public finance may contribute to the institutionalization of both party organizations and party systems, but it may also weaken the dependence of parties on their members and supporters in ways that undermine representation.
Private finance in Latin America remains largely obscure. We know that relatively few private donors account for the lion’s share of party donations, but it is unclear in many cases exactly who donates, or what their money buys. It is therefore difficult for voters (and analysts) to determine the structure of party obligations to donors and to hold parties accountable. Partly as a result, drug money is believed to have penetrated the political systems of many Latin American countries, especially but not exclusively at the local level.
Campaign spending limits, including limits on the duration of campaigns and campaign advertising, have been employed in some cases to try to contain costs and thus reduce the incentives of parties to seek out private donations, especially of questionable origin. Lax enforcement, however, limits the impact of these initiatives.
Monetary integration issues in Latin America: A multivariate assessment
