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Domingo Felipe "Mingo" Cavallo (born July 21, 1946, in San Francisco, Cordoba) is an Argentinemarker economist and politician. He has a long history of public service and is known for implementing the Convertibilidad plan, which fixed the dollar-peso exchange rate at 1:1 between 1991 and 2001, which brought the Argentine inflation rate down from over 1,300% in 1990 to less than 20% in 1992 and nearly zero during the rest of the 1990s. He is also well known for implementing the corralito, which restrained savers from withdrawing their own money from bank accounts and was followed by the December 2001 riots and the fall of President Fernando de la Rúa.

Early years

Cavallo was born in San Francisco, Córdoba Province. He graduated with honors in Accounting (1967) and Economy (1968) at the National University of Córdobamarker and earned his Doctorate in Economics (1970). Several years later he got a second doctorate in Economics at Harvard Universitymarker (1977).

Beginnings in politics

His involvement in politics began when he was chosen by his peer students to represent them at the highest government body of the Economics School (1965–1966). However, he was then co-opted by military regimes, acting as Undersecretary of Development of the provincial government (1969–1970), Director (1971–1972) and Vicepresident of the Board (1972–1973) of the provincial Bank and Undersecretary of Interior of the national government.

In July 1982, after the Falklands War fiasco brought more moderate leadership to the military dictatorship, Domingo Cavallo was appointed President of the Central Bankmarker. Cavallo inherited the country's most acute financial and economic crisis since 1930 and a particularly heinous Central Bank regulation painfully remembered as the Central Bank Circular # 1050. Implemented in April, 1980, at the behest of conservative Economy Minister José Alfredo Martínez de Hoz, the policy tied adjustable loan installments (nearly all lending in Argentina is on an adjustable interest basis) to the value of the US Dollar locally. Exchange rates were controlled at the time and so, it raised little concern. The next February, however, the Peso was sharply devalued and continued to plummet for the rest of 1981 and into '82. Mortgage and business borrowers saw their monthly installments balloon over ten-fold in just a year and many (including homeowners just months away from paying off their loans), unable to keep up, either lost their entire equity (see, negative amortization) or everything outright.

Cavallo immediately rescinded the hated Circular 1050 and undeniably, saved millions of homeowners and small-business owners from financial ruin (as well as millions more, indirectly). What followed, however, remains the subject of great controversy, to this day.

Though nothing new to the history of Argentine economy, he implemented financial policies that may have allowed Argentina's main private enterprises to transfer their debts to the state, transforming their private debt into public obligations. In 1983, more than 200 firms (30 economic groups and 106 transnational enterprises) transferred a great part of their 17 billion dollar debt to the federal government, thanks to secured exchange rates on loan installments. There is no clear consensus on this matter, however, as Cavallo inherited this practice from Martinez de Hoz himself (whose chief interest—steelmaker ACINDAR—had unloaded US$700 million of its debts in this way) and indeed, most of this fraud took place both before and after his very brief turn at the Central Bank. In either case, the mechanism turning private debt into liabilities of the state continued even after the advent of democracy under Raúl Alfonsín (1983–1989) and into the economic crisis that followed the Peso's last sharp devaluation in early 2002.

The 1980s

This controversy notwithstanding, upon Argentina's return to democracy in December, 1983, he became a close economic advisor to Peronist politician José Manuel de la Sota and was elected as a Peronist deputy for Córdoba Province in the 1987 national polls. Based on the Fundación Mediterránea think-tank, he prepared an academic team for taking over the management of the economy, and to that end he participated actively in Carlos Menem's bid to the presidency (1989). President Alfonsín's efforts to control hyperinflation (which reached 750% in July 1989) failed, and led to food riots and Alfonsín's resignation.

As Menem chose to deliver the Economy Ministry to senior executives of the firm Bunge y Born, he had to wait a few more years to put in practice his economic theories. In the meantime, as Menem's Foreign Minister (1989–1991), he was instrumental in the realignment of Argentina with the United Statesmarker. Finally, after several false starts that caused renewed hyperinflation peaks, Menem put Cavallo at the helm of the Argentine economy in February, 1991.

The Menem administration

Cavallo was the ideologist behind the Convertibility Plan, which created a currency board that fixed the dollar-peso exchange rate at 1 peso per US dollar. Signing his plan into law in April, 1991, Cavallo succeeded in defeating inflation, which had averaged over 220% a year from 1975 to '88 and had leapt to 5000% in '89 and 1300% in 1990.

To be sure, President Menem had already privatized the state telecom concern and national airlines (the once-premier airline in Latin America, Aerolineas Argentinas, which was later almost run into the ground). The stability Cavallo's plan helped bring about, however, opened prospects for more privatizations than ever. Going on to total over 200 state enterprises, these included the costly state railroads concern, the state oil monopoly YPF (now Repsol YPF), several public utilities, two government television stations, 10,000 km (6000 mi) of roads, steel and petrochemical firms, grain elevators, hotels, subways and even racetracks. A panoply of provincial and municipal banks were sold to financial giants abroad (sometimes over the opposition of their respective governors and mayors) and, taking a page from Chilemarker's successful experiment, the mandatory state pensions system was opened to choice through the authorization of for private pension schemes.

GDP (long stuck at its 1973 level even with a growing population) leapt by about a third from early 1991 to late 1994 and physical investment, depressed since the 1981-82 crisis, more than doubled in this period. Consumers also benefited; income poverty fell by about half (to under 20%) and new auto sales (likewise depressed since '81) jumped fivefold, to about 500,000 units. This boom, however, had its problems early on. Tight federal budgets kept the budget deficits of the provinces from improving and, though many benefited from Cavallo's insistence that large employers translate higher productivity into higher pay, this same productivity boom (as well as the nearly 200,000 layoffs the privatizations caused) helped unemployment jump from about 7% in 1991-92 to over 12%, by 1994—and then, as it were, the other shoe fell. The 1995 Mexican Crisis shocked consumer and business confidence and ratcheted joblessness to 18% (the highest since the 1930s).

Confidence and the economy recovered relatively quickly; but, the consequences of double-digit unemployment soon created a crime wave that (to some extent) continues to this day. Unemployment and poverty eased only very slowly after the return to growth in early 1996 and Cavallo (who always seemed "out-of-touch") became increasingly unpopular.

Never blessed with great political skill and often derogatorily labeled a "technocrat", bad times seemed to weigh heavily on Cavallo. He became increasingly belligerent and, on one famous occasion, got furious over an unfavorable report by demographer Susana Torrado and publicly belittled her and the relevant scientist at the National Scientific and Technical Research Council by suggesting they "go wash the dishes." (the Argentine equivalent of admonishing someone to "go do their homework." )


In 1996, shortly after Menem's reelection, the flux of money from privatisation ceased, and Cavallo was ousted from the cabinet, due to his volatile personality and fights with other cabinet members, coupled with staggering unemployment and social unrest caused by his economic policies and the Mexican crisis. In mid-1995, Cavallo denounced the existence of presumed "mafias" entrenched within the circles of power. After his first public accusations, relations between Cavallo, Pres. Menem and his colleagues became progressively more strained. In July, 1996, Menem finally asked for his resignation.

Cavallo founded a political party, Acción por la República (Action for the Republic), which allowed him to return to Congress, this time as a Deputy for the city of Buenos Airesmarker.

Cavallo ran for president in 1999 but was defeated by Fernando de la Rúa. Cavallo came in third place and received 11% of the vote, far behind both De la Rua and the other main candidate Eduardo Duhalde. He also ran for mayor of Buenos Aires, and lost to Aníbal Ibarra.

De la Rúa and the crisis

In 2001, Cavallo was called by President de la Rúa to lead the economy once again. This time he faced a weak government and several months of recession. He tried to earn more time, renegotiating the external debt with the International Monetary Fundmarker, but the growing country risk and the pressure of the main investors and foreign holdings led to a bank run and a massive capital flight. In November 2001, Cavallo introduced a set of measures that blocked the usage of cash, informally known as the corralito ("financial fence"). The anger of the vast majority of Argentines created a framework for the popular middle-class protest termed the cacerolazo. Political pressure by the Peronist opposition and other organized economic interests coincided with the December 2001 riots. This critical situation finally forced Cavallo, and then de la Rúa, to resign.

A series of Peronist presidents came and left in the next few days, until Eduardo Duhalde, the opponent of De la Rua and Cavallo in the 1999 presidential election, took power on January 2, 2002. Soon afterwards the government decreed the end of peso-dollar convertibility, devalued the peso and soon afterwards let it float, which led to a swift depreciation (the exchange rate briefly reached 4 pesos per dollar in July 2002) and inflation (about 40% in 2002).

Cavallo's policies are viewed by many as major causes of the de-industrialization and the rise of unemployment and poverty endured by Argentina in the 1990s, as well as the collapse of 2001, the ensuing default of the Argentine public debt.

After the crisis

Between April and June 2002 Cavallo was jailed for alleged participation in illegal weapon sales during the Menem administration.

Cavallo was Robert Kennedy Visiting Professor in Latin American Studies at the Department of Economics of Harvard University in Fall 2003/Fall 2004. He has also continued to serve as a member of the influential Washington-based financial advisory body, the Group of Thirty.

External links

  1. INDEC: consumer prices

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