Domingo Felipe "Mingo" Cavallo (born July 21, 1946) is an Argentine

Argentina

Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...

 economist and politician. He has a long history of public service and is known for implementing the Convertibilidad

Argentine Currency Board

The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. In contrast of what most people think,...

plan, which fixed

Fixed exchange rate

A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...

 the dollar

United States dollar

The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

-peso

Argentine peso

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...

 exchange rate

Exchange rate

In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...

 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

Corralito

Corralito was the informal name for the economic measures taken in Argentina at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run, and which were fully in force for one year. The corralito almost completely froze bank accounts and forbade withdrawals from U.S...

, which restrained savers from withdrawing their own money from bank accounts and was followed by the December 2001 riots

December 2001 riots (Argentina)

The December 2001 uprising was a period of civil unrest and rioting in Argentina, which took place during December 2001, with the most violent incidents taking place on December 19 and December 20 in the capital, Buenos Aires, Rosario and other large cities around the country.- Background :The...

 and the fall of President Fernando de la Rúa

Fernando de la Rúa

Fernando de la Rúa is an Argentine politician. He was president of the country from December 10, 1999 to December 21, 2001 for the Alliance for Work, Justice and Education ....

.

Early years

Cavallo was born in San Francisco

San Francisco, Córdoba

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...

, Córdoba Province to Florencia and Felipe Cavallo, Italian Argentine

Italian Argentine

An Italian Argentine is a person born in Argentina of Italian ancestry. It is estimated up to 25 million Argentines have some degree of Italian descent...

 immigrants from the Piedmont

Piedmont

Piedmont is one of the 20 regions of Italy. It has an area of 25,402 square kilometres and a population of about 4.4 million. The capital of Piedmont is Turin. The main local language is Piedmontese. Occitan is also spoken by a minority in the Occitan Valleys situated in the Provinces of...

 Region. He graduated with honors in Accounting (1967) and Economics

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

 (1968) at the National University of Córdoba

National University of Córdoba

The National University of Córdoba, , is the oldest university in Argentina, and one of the oldest in the Americas. It is located in Córdoba, the capital of Córdoba Province. Since the early 20th century it has been the second largest university in the country in terms of the number of students,...

, 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

Harvard University

Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...

, where he earned a second doctorate

Doctorate

A doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder to teach in a specific field, A doctorate is an academic degree or professional degree that in most countries refers to a class of degrees which qualify the holder...

 in Economics in 1977.

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

Falklands War

The Falklands War , also called the Falklands Conflict or Falklands Crisis, was fought in 1982 between Argentina and the United Kingdom over the disputed Falkland Islands and South Georgia and the South Sandwich Islands...

 fiasco brought more moderate leadership to the military dictatorship, Cavallo was appointed President of the Central Bank

Banco Central de la República Argentina

-Overview:Established by six Acts of Congress enacted on May 28, 1935, the bank replaced Argentina's Currency board, which had been in operation since 1890...

. 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

José Alfredo Martínez de Hoz

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 self-styled National Reorganization Process military dictatorship.-Early...

, the policy tied adjustable loan installments (nearly all lending in Argentina is on an adjustable interest basis) to the value of the US Dollar

United States dollar

The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....

 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

Negative amortization

In finance, negative amortization, also known as NegAm, deferred interest or graduated payment mortgage, 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...

) 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

Economy of Argentina

This article provides an overview of the Economic history of Argentina.-Emergence into the world economy:Prior to the 1880s, Argentina was a relatively isolated backwater, dependent on the wool, leather and hide industry for both the greater part of its foreign exchange and the generation of...

, 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. In either case, the mechanism turning private debt into liabilities of the state continued even after the advent of democracy

Democracy

Democracy is generally defined as a form of government in which all adult citizens have an equal say in the decisions that affect their lives. Ideally, this includes equal participation in the proposal, development and passage of legislation into law...

 under Raúl Alfonsín

Raúl Alfonsín

Raúl Ricardo Alfonsín was an Argentine lawyer, politician and statesman, who served as the President of Argentina from December 10, 1983, to July 8, 1989. Alfonsín was the first democratically-elected president of Argentina following the military government known as the National Reorganization...

 (1983–89) and into the economic crisis that surrounded the Peso

Historical exchange rates of Argentine currency

The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...

'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

Peronism

Peronism , or Justicialism , is an Argentine political movement based on the programmes associated with former President Juan Perón and his second wife, Eva Perón...

 politician José Manuel de la Sota

José Manuel de la Sota

José Manuel de la Sota is an Argentine Justicialist Party politician. He was the governor of Córdoba Province from 1999 until 2007.-Biography:...

 and was elected as a Peronist deputy

Argentine Chamber of Deputies

The Chamber of Deputies is the lower house of the Argentine National Congress. This Chamber holds exclusive rights to create taxes, to draft troops, and to accuse the President, the ministers and the members of the Supreme Court before the Senate....

 for Córdoba Province in the 1987 mid-term polls

Argentine legislative election, 1987

The Argentine legislative elections of 1987 were held on 6 September. Voters chose their legislators and governors and, with a turnout of 83.6%, it produced the following results:-Argentine Congress:-Background:...

. 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

Carlos Menem

Carlos Saúl Menem is an Argentine politician who was President of Argentina from 1989 to 1999. He is currently an Argentine National Senator for La Rioja Province.-Early life:...

's bid to the presidency (1989

Argentine general election, 1989

The Argentine general election of 1989 was held on 14 May. Voters chose both the President and their legislators and with a turnout of 85.3%, it produced the following results:-President:aAbstentions.-Argentine Congress:...

). President Alfonsín's efforts to control hyperinflation

Hyperinflation

In economics, hyperinflation is inflation that is very high or out of control. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases...

 (which reached 200% a month in July 1989) failed, and led to food riots

1989 riots in Argentina

The 1989 food riots were a series of riots and related episodes of looting in stores and supermarkets in Argentina, during the last part of the presidency of Raúl Alfonsín, between May and June 1989...

 and Alfonsín's resignation.

As Menem chose to deliver the Economy Ministry to senior executives of the firm Bunge y Born

Bunge y Born

Bunge y Born was a multinational corporation based in Buenos Aires, Argentina, whose diverse interests included food processing and international trade in grains and oilseeds...

, 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

Washington Consensus

The term Washington Consensus was coined in 1989 by the economist John Williamson to describe a set of ten relatively specific economic policy prescriptions that he considered constituted the "standard" reform package promoted for crisis-wracked developing countries...

 advanced by U.S.

United States

The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 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

Argentine Currency Board

The Argentine Currency Board pegged the Argentine peso to the U.S. dollar between 1991 and 2002 in an attempt to eliminate hyperinflation and stimulate economic growth. While it initially met with considerable success, the board's actions ultimately failed. In contrast of what most people think,...

 that fixed the dollar-peso exchange rate

Historical exchange rates of Argentine currency

The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...

 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.

President Menem had already privatized the state telecom concern and national airlines (the once-premier airline in Latin America, Aerolíneas Argentinas

Aerolíneas Argentinas

Aerolíneas Argentinas , formally Aerolíneas Argentinas S.A., is Argentina's largest airline and serves as the country's flag carrier. Owned in its majority by the Argentine Government, the airline is headquartered in the Torre Bouchard, located in San Nicolás, Buenos Aires...

, which was later almost run into the ground). The stability Cavallo's plan helped bring about, however, opened prospects for more privatization

Privatization

Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...

s than ever. Going on to total over 200 state enterprises, these included the costly state railroads concern, the state oil monopoly YPF

Yacimientos Petrolíferos Fiscales

Yacimientos Petrolíferos Fiscales is an Argentine oil company.Founded in 1922 under President Hipólito Yrigoyen's administration, it was privatized in 1993 by Carlos Menem, and bought by the Spanish firm Repsol; the resulting merger in 1999 produced Repsol YPF...

 (now Repsol YPF

Repsol YPF

Repsol YPF, S.A. is an integrated Spanish oil and gas company with operations in 29 countries...

), 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

Chile

Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

'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

1994 economic crisis in Mexico

The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....

 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

Crime Wave

Crime Wave can refer to:* An increase in crime - or perception of an increase in crime - in a particular period and place* Crime Wave , film starring Sterling Hayden* "Crime Wave" , season 3 episode 8 of CSI Miami...

 that (to some extent) continues to this day. Unemployment and poverty eased only very slowly after the return to growth in early 1996.

Independent

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

1994 economic crisis in Mexico

The 1994 Economic Crisis in Mexico, widely known as the Mexican peso crisis, was caused by the sudden devaluation of the Mexican peso in December 1994....

. In mid-1995, Cavallo denounced the existence of presumed "mafia

Mafia

The Mafia is a criminal syndicate that emerged in the mid-nineteenth century in Sicily, Italy. It is a loose association of criminal groups that share a common organizational structure and code of conduct, and whose common enterprise is protection racketeering...

s" 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.

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

Buenos Aires

Buenos Aires is the capital and largest city of Argentina, and the second-largest metropolitan area in South America, after São Paulo. It is located on the western shore of the estuary of the Río de la Plata, on the southeastern coast of the South American continent...

.

Cavallo ran for president in 1999, but was defeated by Fernando de la Rúa

Fernando de la Rúa

Fernando de la Rúa is an Argentine politician. He was president of the country from December 10, 1999 to December 21, 2001 for the Alliance for Work, Justice and Education ....

. 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

Eduardo Duhalde

-External links:...

. He also ran for Mayor of Buenos Aires in 2000, and lost to Aníbal Ibarra

Aníbal Ibarra

Aníbal Ibarra is an Argentine lawyer and politician who served as mayor of Buenos Aires from 2000 to 2006.-Biography:Ibarra was born in Lomas de Zamora, a district located in the southern region of Greater Buenos Aires. His father was a Paraguayan member of the PLRA who left his country during the...

.

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. He attempted to restore business confidence by renegotiating the external debt with the International Monetary Fund

International Monetary Fund

The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

 and with bondholders, but the growing country risk

Country risk

Country risk refers to the risk of investing in a country, dependent on changes in the business environment that may adversely affect operating profits or the value of assets in a specific country...

 and spiraling put option

Put option

A put or put option is a contract between two parties to exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity...

s by large investors and foreign holdings led to a bank run and a massive capital flight

Capital flight

Capital flight, in economics, occurs when assets and/or money rapidly flow out of a country, due to an economic event and that disturbs investors and causes them to lower their valuation of the assets in that country, or otherwise to lose confidence in its economic...

. In late November 2001, Cavallo introduced a set of measures that blocked the usage of cash, informally known as the corralito

Corralito

Corralito was the informal name for the economic measures taken in Argentina at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run, and which were fully in force for one year. The corralito almost completely froze bank accounts and forbade withdrawals from U.S...

("financial corral"). The anger of those Argentines with the means to invest abroad created a framework for the popular middle-class protest

Protest

A protest is an expression of objection, by words or by actions, to particular events, policies or situations. Protests can take many different forms, from individual statements to mass demonstrations...

 termed the cacerolazo

Cacerolazo

A cacerolazo or cacerolada is a form of popular protest practised in certain Spanish-speaking countries – in particular Argentina and Chile – which consists in a group of people creating noise by banging pots, pans, and other utensils in order to call for attention...

. Political pressure by the Peronist opposition and other organized economic interests coincided with the December 2001 riots

December 2001 riots (Argentina)

The December 2001 uprising was a period of civil unrest and rioting in Argentina, which took place during December 2001, with the most violent incidents taking place on December 19 and December 20 in the capital, Buenos Aires, Rosario and other large cities around the country.- Background :The...

. 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

Eduardo Duhalde

-External links:...

, 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

Devaluation

Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....

 the peso and soon afterwards let it float

Floating exchange rate

A floating exchange rate or fluctuating exchange rate is a type of exchange rate regime wherein a currency's value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency....

, which led to a swift depreciation

Depreciation (currency)

Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears...

 (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

Default (finance)

In finance, default occurs when a debtor has not met his or her legal obligations according to the debt contract, e.g. has not made a scheduled payment, or has violated a loan covenant of the debt contract. A default is the failure to pay back a loan. Default may occur if the debtor is either...

 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

Group of Thirty

The Group of Thirty, often abbreviated to G30, is an international body of leading financiers and academics which aims to deepen understanding of economic and financial issues and to examine consequences of decisions made in the public and private sectors related to these issues...

.

External links

• Personal homepage (in Spanish and English)