“Javier, I'm going to set the exchange rate to 10,000 australes.”
“But if the convertibility exchange rate is below 7,000.”
“It will be 10,000.”
The dialogue was between Domingo Cavallo and Javier González Fraga in the first days of February 1991. Erman González had already presented his resignation as Minister of Economy and, after a trip to Venezuela as chancellor,
Cavallo learned that he would be the replacement
.
When he arrived in Ezeiza, there was a car waiting for him to go directly to Olivos to have his first meeting as minister.
There he met González Fraga and Erman.
The two had gone to update him on the situation.
González Fraga carried a red folder where he calculated convertibility every day.
The Menem government had applied a strict and orthodox monetary policy throughout 1990 to control inflation.
And the Central Bank 'sat on the exchange rate'.
The dollar between February and December of that year rose 1.7%, going from 5,750 australes to 5,820 in December.
Inflation in the same period was 607%.
In January the dollar went to 9,250 australes
flying through the air Erman and González Fraga
(in 1990 there were three presidents of the BCRA: Enrique Folcini, Erman and González Fraga. Between March and September 8 billion australes were issued,
40% monthly average
).
Cavallo entered and took 45 days to apply 1 peso = 1 dollar.
He previously did the dirty work.
There were delayed payments that had been made only to show a reduction in public spending.
Cavallo, who intended to launch a convertibility, found that the Treasury had stopped payments to suppliers, public employees and pensions, and had to solve all that before launching 1 to 1.
The minister then ordered Saúl Bouer, the Secretary of the Treasury, to cancel all debts in the last days of February.
“I don't have Mingo money
,” Bouer responded.
“Talk to Roque, let him turn you around.”
Roque was Roque Fernández, González Fraga's replacement at the Central Bank.
Bouer gave him a bonus in return.
That same night, and after the BCRA sold US$300 million that day in 2 hours, they met in Olivos with Menem and Roque.
Cavallo's critics at that time blamed the minister for having generated an inflationary run and flash by paying the bills because inflation had been falling (it had gone from 15.7% in September 1990 to 4.7% in December and February 1991, before launching the 1 to 1 it was 27%).
The accusation was that Cavallo had caused inflation to go to convertibility.
But it had happened that the dollar had fallen behind.
On Saturday, March 16, Cavallo called his two main collaborators, Juan Llach and Horacio Liendo, to ask them to come to his house the following night.
“We are going to convertibility
,” he told them on the phone.
The period prior to convertibility seems at times to have records
similar to the current moment
.
And, if not, just look at what the book It says
may fail: economy and communication in 40 years of democracy
, by Andrés Borenstein and Gabriel Llorens Rocha.
“If you review the previous period, that is, the period between when Cavallo took office in February 1991 and the plan was announced seven weeks later, all
the music of the economic team was set to fiscal matters
.”
“And when the monetary aspect was touched on it was only to say that it had been issued to finance the deficit.
The monetary issue needs surprise on the one hand, but on the other hand
without a fiscal anchor there is no monetary policy that can endure
.”
On Sunday, February 3, the Cavallo plan was launched without mention of convertibility.
There was talk of raising rates and taxes.
Menem introduces a topic that Borenstein-Llorens points out as
“communication change”
.
“Alfonsín came from playing with the Non-Aligned and with what perhaps Argentine society was more accustomed to in geopolitical matters.
“Menem breaks with this.”
Argentina would support the US in the Gulf War.
There is a railway strike a few days later. Menem fires 200 workers. Weeks later it suspends 13,900.
The President conditions the financial aid to the provinces on the passing of the tax package that Cavallo had sent to Congress.
And he receives 500 businessmen: he asks them not to increase prices.
Doesn't all this sound familiar to you?
Geopolitics, communication, governors, fiscal anchor...
Fifteen days before launching convertibility, the Government managed to get the Senate to meet and obtain approval of the fiscal package.
The dollar fell to 9,700 australes.
Cavallo announced a minimum value for the exchange rate and for March 19 he said that he will leave it at 10,000 australes.
Clarín
headlines “They dollarize the economy: the entire scheme depends on the Government not spending more than it collects.
If it does, it will break parity and inflation will return.”