December 22, 2014
‘Griesa delivered an accurate ruling’
Former Economy Minister Domingo Cavallo dismisses the risk of RUFO clause
Former Economy Minister Domingo Cavallo (1991-1996, 2001) is back in Buenos Aires to present his new book Road to Stability and is planning to stay here, after teaching for many years at universities in the United States. His dollar/peso convertibility plan, implemented in the 1990s, was strongly related to Argentina’s foreign debt, which makes him a key source with regard to the current struggle against the “vulture” funds. As a matter of fact, he had a high level of responsibility in several debt swaps and left Fernando de la Rúa’s presidency only three weeks before the 2001 default, amid the worst social crisis in Argentine history. Cavallo welcomed the Herald in his office in Barrio Parque, surrounded by a wall of university diplomas from all over the world.
Do you still think that Peronist leader Eduardo Duhalde was the head of an institutional coup d’etat in December 2001?
Yes, the coup d’état was carried out so we wouldn’t be able to end the country’s debt restructuring process well. There were many people interested in that, such as vulture funds who wanted Argentina to default. But there were also domestic vulture funds that sought a devaluation and the changing of dollars into pesos. They had debts in dollars under Argentine law so they tried to convince Duhalde to carry out those measures. It was a solution to their problems but not for the country’s.
Who gave Duhalde the idea to do that? Big companies?
No, the idea was brought by (José Ignacio) de Mendiguren and the Argentine Industrial Union (UIA). Techint and Clarín had large debts in dollars so they would have benefited by changing them into pesos. Yet they didn’t promote the plan, the heads of the UIA did it. The same people who organized the coup d’état are the ones who provoked the deaths in Plaza de Mayo. The ones who sought a devaluation couldn’t take the government because Adolfo Rodríguez Saá didn’t like their plan. But that’s why they put Duhalde as president, who was managed by domestic vulture funds.
In your latest book, you say that the convertibility law could have been maintained in 2001 but not with a fixed exchange rate. How was that possible in the complex social scene in Argentina back then?
We could have continued with the convertibility law with a flexible exchange rate but not without first finishing the debt-restructuring process. Such a measure cannot be taken when there’s a large amount of bonds in dollars from the public and private sector that have to be paid soon. Devaluating the peso would have meant aggravating the financial crisis, when we actually had to solve it instead.
Considering the complex international scene, with the crisis in Turkey and the terrorist attack on the Twin Towers, was continuing with a mechanism that led to higher debts for the country worth it?
Higher debts? That’s not true. The zero deficit law helped to cut domestic debts and at the same time we were reducing our debts with foreign countries and creditor agencies. We created that law because we realized we couldn’t continue taking on debt. If we continued to do that, the private sector would have been prejudiced. All we did was stop taking on debt. Many ask why we kept going with the convertibility law. But what did they want? To do the same that Duhalde did later?
But you know that there’s a middle ground between continuing with the convertibility law and doing what Duhalde did...
The country should have never abandoned the convertibility law, understanding it as the free choice of currency. If you deposit dollars, you should be able to withdraw dollars. The fixed exchange rate had to be changed and I started to do that by linking the peso not only to the dollar exchange rate but also to the euro.
Months after the debt swap, also known as Megacanje, Argentina defaulted. How do you explain that measure?
It was a normal debt swap operation, like one carried out in any country. It’s useful to postpone upcoming payments and to avoid paying large figures for a few months. It was a voluntary operation and the ones who didn’t participate kept their old bonds. It was the only way we could avoid a default. We remained with the same debt but with longer deadlines.
Did the government pay excessive commissions to the banks that participated in the operation? For instance, your colleague David Mulford (Crédit Suisse First Boston) is said to have received US$20 million.
That’s absurd. We paid the commissions that were usually paid in such operations. It’s something that was fully proven in the judicial investigation. Seven banks participated, all on the same terms. The one headed by David Mulford gave us the idea but the other six had also brought us other alternatives. We told them to join forces and to bring us one single proposal to reach the largest amount of people. It was a successful measure. US$30 billion participated in the debt swap and we avoided paying large figures of money in the short-term. Linking the megacanje to the default is ridiculous because the bonds that were given back then had no immediate payments.
How do you think the case with holdouts is going to end?
If they (the Economy Ministry) keep reasoning like they do now, it’s going to end badly. What Axel Kicillof says and the things they submit at the court show they are well advised. But sooner or later there will be a reasonable agreement. Legal experts believe that Griesa delivered an accurate ruling.
But if you look at the transcripts of the hearings it seems clear there’s a close relation between Griesa and the holdouts.
That’s the government’s argument. They aren’t solving the problems because they think they will obtain more support by making the government vs holdouts battle what previously Braden vs Perón was. The government wants to have an enemy with which they can fight and gain people’s support. They think they can solve the problem by doing that.
Can the government pay the houldouts without triggering the RUFO clause? If it is triggered, it would be catastrophic.
The RUFO is an excuse they use. It’s not applicable to fulfill the court’s order, it’s only for voluntary offers. It would be absurd if the clause were applied when a country is following a court’s order. The government wants to use the case to obtain more support but they are playing with fire and the ones who will end up prejudiced will be all the Argentines.
When you were the Economy Minister in Menem’s government you mentioned after the Yabrán episode that there were gangs in top political circles. Do you still believe that?
Of course, that was fully proven. The murder of photographer José Luis Cabezas and everything that led to the murder happened because I faced up that gang. Because of that I faced a lot of judicial and media attacks.
You mentioned back then that politicians, journalists and other people were part of the gang. Do you still identify them that way?
The mob that was headed by Alfredo Yabrán had several other members in it who were felons like him. They used several mechanisms and people and it’s questionable why they let themselves be used. But after they stopped being used, I didn’t have to chase them. That mafia is long gone, thanks to what I did. Menem gave me a lot of power to fight it but only up until a certain point.
But why would he stop supporting you?
I think the murder of his son was the reason, but he never told me. He thougth I had to stop my fight against the mob but because of his personality and mine and the mutual respect we had for one another, he must have thought he couldn’t tell me. When you start fighting the gang, things happen. Menem had his disgraces but people close to me also had their problems and accidents.