Domingo Cavallo

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Domingo Cavallo
Domingo Cavallo (cropped).jpg
Minister of Economy of Argentina
In office
20 March 2001 20 December 2001
President Fernando de la Rúa
Preceded by Ricardo López Murphy
Succeeded by Jorge Capitanich
In office
1 February 1991 6 August 1996
President Carlos Menem
Preceded by Antonio Erman González
Succeeded by Roque Fernández
Minister of Foreign Affairs
In office
8 July 1989 31 January 1991
President Carlos Menem
Preceded bySusana Ruiz Cerruti
Succeeded by Guido di Tella
President of the Central Bank of Argentina
In office
2 July 1982 26 August 1982
President Reynaldo Bignone
Preceded by Egidio Iannella
Succeeded by Julio González del Solar
Personal details
Domingo Felipe Cavallo

(1946-07-21) July 21, 1946 (age 73)
San Francisco, Córdoba
Nationality Argentine
Political party Justicialist Party
Other political
Action for the Republic
Spouse(s)Sonia Abrazián
Alma mater National University of Córdoba (1968)
Harvard University (1977)

Domingo Felipe "Mingo" Cavallo (born San Francisco, Córdoba, July 21, 1946) is an Argentine economist and politician. He has a track record 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. This brought the Argentine inflation rate down from over 1,300% in 1990 to less than 20% in 1992 and nearly to zero during the rest of the 1990s. [1] Guided by his politics, Argentina entered into one of the most difficult crisis in its history. He is also well known for implementing the corralito , which restrained Argentine citizens from withdrawing money from their bank accounts. This was followed by the December 2001 riots and the fall of President Fernando de la Rúa. In 2015, he was sentenced for embezzlement, following an appeal. A definitive sentence still awaits. [2] [3]

Argentina Federal republic in South America

Argentina, officially the Argentine Republic, is a country located mostly in the southern half of South America. Sharing the bulk of the Southern Cone with Chile to the west, the country is also bordered by Bolivia and Paraguay to the north, Brazil to the northeast, Uruguay and the South Atlantic Ocean to the east, and the Drake Passage to the south. With a mainland area of 2,780,400 km2 (1,073,500 sq mi), Argentina is the eighth-largest country in the world, the fourth largest in the Americas, and the largest Spanish-speaking nation. The sovereign state is subdivided into twenty-three provinces and one autonomous city, Buenos Aires, which is the federal capital of the nation as decided by Congress. The provinces and the capital have their own constitutions, but exist under a federal system. Argentina claims sovereignty over part of Antarctica, the Falkland Islands, and South Georgia and the South Sandwich Islands.

United States dollar Currency of the United States of America

The United States dollar is the official currency of the United States and its territories per the United States Constitution since 1792. In practice, the dollar is divided into 100 smaller cent (¢) units, but is occasionally divided into 1000 mills (₥) for accounting. The circulating paper money consists of Federal Reserve Notes that are denominated in United States dollars.

Argentine peso currency of Argentina

The peso is the currency of Argentina, identified by the symbol $ preceding the amount in the same way as many countries using dollar currencies. It is subdivided into 100 centavos. Its ISO 4217 code is ARS.


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. [4]

San Francisco, Córdoba City in Córdoba, Argentina

San Francisco is a city located at the far east border of the province of Córdoba, Argentina, and parts of the city are beyond the border into the province of Santa Fe. In the city National Routes 19 and 158 intersect. It is the fourth most populated city in the province of Córdoba, with about 59,000 inhabitants, and the head city of the San Justo Department.

Córdoba Province, Argentina Province of Argentina

Córdoba is a province of Argentina, located in the center of the country. Neighboring provinces are : Santiago del Estero, Santa Fe, Buenos Aires, La Pampa, San Luis, La Rioja and Catamarca. Together with Santa Fe and Entre Ríos, the province is part of the economic and political association known as the Center Region.

Piedmont Region of Italy

Piedmont is a region in northwest Italy, one of the 20 regions of the country. It borders the Liguria region to the south, the Lombardy and Emilia-Romagna regions to the east and the Aosta Valley region to the northwest; it also borders Switzerland to the northeast and France to the west. It has an area of 25,402 square kilometres (9,808 sq mi) and a population of 4,377,941 as of 30 November 2017. The capital of Piedmont is Turin.

Beginnings in politics

His involvement in politics began when he was elected as a student representative to 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. He 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 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. [5]

Falklands War War between Argentina and the United Kingdom in 1982

The Falklands War was a 10-week undeclared war between Argentina and the United Kingdom in 1982 over two British dependent territories in the South Atlantic: the Falkland Islands and its territorial dependency, the South Georgia and the South Sandwich Islands.

José Alfredo Martínez de Hoz Argentine politician

José Alfredo Martínez de Hoz was an Argentine executive and policy maker. He served as Minister of the Economy under de facto President Jorge Rafael Videla between 1976 and 1981, and shaped economic policy during the National Reorganization Process military dictatorship.

In finance, negative amortization occurs whenever the loan payment for any period is less than the interest charged over that period so that the outstanding balance of the loan increases. As an amortization method the shorted amount is then added to the total amount owed to the lender. Such a practice would have to be agreed upon before shorting the payment so as to avoid default on payment. This method is generally used in an introductory period before loan payments exceed interest and the loan becomes self-amortizing. The term is most often used for mortgage loans; corporate loans with negative amortization are called PIK loans.

Cavallo immediately rescinded the hated Circular 1050 and as a result, saved millions of homeowners and small-business owners from financial ruin (as well as millions more, indirectly). What followed, however, remained the subject of great controversy. [6]

Though nothing new to the economic history of Argentina, he is often accused of implementing 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. During 1982 and 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. This fraud took place both before and after his very brief turn at the Central Bank, but not while he was in charge. In a speech in September 1982 he was forced renounce and express his opposition to the transfer of debt to the state. [7] He inherited this practice from Martínez de Hoz himself (whose chief interest, steelmaker Acindar, had unloaded US$700 million of its debts in this way). Moreover, Cavallo subjected payments covered by these exchange rate guarantees to indexation; this latter stipulation was dropped by his successor, Julio González del Solar. [8] 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.

The economic history of Argentina is one of the most studied, owing to the "Argentine paradox", its unique condition as a country that had achieved advanced development in the early 20th century but experienced a reversal, which inspired an enormous wealth of literature and diverse analysis on the causes of this decline. Since independence from Spain in 1816, the country has defaulted on its debt eight times and inflation has often been in the double digits, even as high as 5000%, resulting in several large currency devaluations.

Indexation is a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation, while deindexation is the unwinding of indexation.

1983 Argentine general election

The Argentine general election of 1983 was held on 30 October and marked the return of constitutional rule following the self-styled National Reorganization Process dictatorship installed in 1976. Voters fully chose the president, governors, mayors, and their respective national, province and town legislators; with a turnout of 85.6%.

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 for the presidency in 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.

Peronism Argentine political movement

Peronism or Justicialism (justicialismo) is an Argentine political movement based on the political ideology and legacy of former President Juan Domingo Perón and his second wife Eva Perón.

José Manuel de la Sota Argentine politician

José Manuel de la Sota was an Argentine politician who was a member of Justicialist Party. He was the governor of Córdoba Province from 1999 until 2007, and was reelected to the post for the 2011–15 term.

Argentine Chamber of Deputies

The Chamber of Deputies is the lower house of the Argentine National Congress. It is made up of 257 national deputies who are elected in multi-member constituencies corresponding with the territories of the 23 provinces of Argentina by party list proportional representation. Elections to the Chamber are held every two years; half of its members are renewed each election.

The Menem administration

Cavallo introduces the Convertibility Plan in 1991.

As Menem initially chose to deliver the Economy Ministry to senior executives of the firm Bunge y Born, Cavallo had to wait a few more years to put his economic theories into practice. He served as Menem's foreign minister, and 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, and two further peaks of hyperinflation, Menem put Cavallo at the helm of the Argentine Economy Ministry in February, 1991.

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; he signed his plan into law on April 1, 1991. Cavallo thus succeeded in defeating inflation, which had averaged over 220% a year from 1975 to 1988, had leapt to 5000% in 1989, and remained at 1300% as late as 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, 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 the Chile pension system privatization, the mandatory National Pension System was opened to choice through the authorization of private pension schemes.

GDP, long stuck at its 1973 level even with a growing population, grew by about a third from early 1991 to late 1994. Fixed investment, depressed since the 1981–82 crisis, more than doubled during 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. [9]

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. [10] 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. [11]

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 deindustrialization 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 weapons sales during the Menem administration. He was exonerated of all charges related to this scandal in 2005. [12]

Cavallo served as the Robert Kennedy Visiting Professor in Latin American Studies in the Department of Economics at Harvard University from the Fall 2003 semester to the Fall 2004. He has also continued to serve as a member of the influential Washington-based financial advisory body, the Group of Thirty. As of January 2012, Cavallo is a Senior Fellow at the Jackson Institute for Global Affairs at Yale University as well as a visiting lecturer at Yale's Economics department.

Cavallo returned to Córdoba Province in 2013 to run for Chamber of Deputies under the Es Posible ticket, led by center-right Peronist Alberto Rodríguez Saá. [13] Winning only 1.28% of the provincial vote, Cavallo failed to reach the required 1.5% threshold in the August 2013 open primaries, and was disqualified from the running for the general election in what the local press described as "an emphatic defeat." [14]

Criminal sentence

On December 1, 2015, Cavallo, ex president Carlos Saul Menem, and ex justice minister Raúl Granillo Ocampo, were found guilty of embezzlement by the court Tribunal Oral Federal 4 [15] [16]

Cavallo was sentenced to 3.5 years in prison, [17] and banned for life from working on public service.


Foreign honour

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  1. 1 2 INDEC: consumer prices
  2. "Menem, Cavallo sentenced to prison in fraud trial".
  4. Noticias. 12 September 1991.
  5. "El recuerdo de la Circular 1050". Clarín. April 14, 2002.
  6. "Ordenan investigar si Cavallo debe devolver 17.000 millones de dólares". La Nación. September 16, 2011.
  7. Cavallo, Domingo. Economía en Tiempos de Crisis. p. 25.
  8. Argentina: From Insolvency to Growth. World Bank, 1993.
  9. Clarín. 27 July 1996 ‹See Tfd› (in Spanish)
  10. La Nación. 20 March 2001 ‹See Tfd› (in Spanish)
  11. La Nación. 20 December 2001 ‹See Tfd› (in Spanish)
  12. "Alivio para Menem y Cavallo en causa por contrabando de armas". La Crónica de Hoy. April 13, 2005.
  13. "Unos regresaron con gloria; otros fracasaron". La Nación.
  14. "Cavallo no llega a octubre en una elección cordobesa dominada por Schiaretti". La Prensa.
  15. "Condenaron a Menem y Cavallo por el pago de sobresueldos".
  16. "Condenan a prisión a Menem y a Cavallo por pagar sobresueldos, pero seguirán libres".
  17. "Argentina: Carlos Menem, Domingo Cavallo Imprisoned for Theft". La nueva Televisión del Sur C.A. Retrieved January 7, 2017.
  18. "Semakan Penerima Darjah Kebesaran, Bintang dan Pingat".
Preceded by
Antonio Erman González
Minister of Economy
Succeeded by
Roque Fernández
Preceded by
Ricardo López Murphy
Minister of Economy
Succeeded by
Jorge Capitanich