Domingo Cavallo

Domingo Cavallo
Domingo Cavallo

Domingo Felipe "Mingo" Cavallo (born July 21, 1946) is an Argentine 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.[1] 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 to Florencia and Felipe Cavallo, Italian Argentine immigrants from the Piedmont Region. He graduated with honors in Accounting (1967) and Economics (1968) at the National University of Córdoba, where he earned his Doctorate in Economics in 1970. He married the former Sonia Abrazián in 1968, and had three children. He would later enroll at Harvard University, where he earned a second doctorate in Economics in 1977.[2]

Beginnings in politics

His involvement in politics began when he was elected as a student representative at the highest government body of the Economics School (1965–1966). He acted as Undersecretary of Development of the provincial government (1969–1970), Director (1971–1972) and Vice President 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, Cavallo was appointed President of the Central Bank. 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 therefore raised little concern. The next February, however, the Peso was sharply devalued and continued to plummet for the rest of 1981 and into 1982. Mortgage and business borrowers saw their monthly installments increase over tenfold 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, this fraud took place both before and after his very brief turn at the Central Bank.[3] In either case, the mechanism turning private debt into liabilities of the state continued even after the advent of democracy under Raúl Alfonsín (1983–89) and into the economic crisis that surrounded the Peso's last sharp devaluation in early 2002.

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 mid-term polls. Drawing from his 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 200% a month 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 Washington Consensus advanced by U.S. President George H.W. Bush. 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 1988 and had leapt to 5000% in 1989, and remained at 1300% in 1990.[1]

President Menem had already privatized the state telecom concern and national airlines (the once-premier airline in Latin America, Aerolíneas 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 Chile'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 1982) 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. 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.


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, President Menem and his colleagues became progressively strained. Following months of speculation, Menem asked for his resignation on July 26, 1996.[4]

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 Aires.

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 Rúa and the other main candidate, Peronist Eduardo Duhalde. He also ran for Mayor of Buenos Aires in 2000, and lost to Aníbal Ibarra.

De la Rúa and the crisis

Cavallo was called by President de la Rúa in March 2001 to lead the economy once again, in the face of a weakened coalition government and two years of recession.[5] He attempted to restore business confidence by renegotiating the external debt with the International Monetary Fund and with bondholders, but the growing country risk and spiraling put options by large investors and foreign holdings led to a bank run and a massive capital flight. In late November 2001, Cavallo introduced a set of measures that blocked the usage of cash, informally known as the corralito ("financial corral"). The anger of those Argentines with the means to invest abroad 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.[6]

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 opponents as major causes of the de-industrialization and the rise of unemployment, poverty and crime endured by Argentina in the late 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.


  1. ^ a b INDEC: consumer prices
  2. ^ Noticias. 12 September 1991.
  3. ^ Argentina: From Insolvency to Growth. World Bank, 1993.
  4. ^ Clarín. 27 July 1996 (Spanish)
  5. ^ La Nación. 20 March 2001 (Spanish)
  6. ^ La Nación. 20 December 2001 (Spanish)

External links

Preceded by
Erman Gonzalez
Minister of Economy
Succeeded by
Roque Fernández
Preceded by
Ricardo López Murphy
Minister of Economy
Succeeded by
Jorge Capitanich

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