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Thursday, June 23, 2005

So what ever happened to Domingo Cavallo?

Published Saturday June 11, 2005 by Domingo F. Cavallo, former Argentine Minister of Economy on his blog at

(I found this post so fascinating, and not just because of the analysis of the past but more so because of the comments about what is happening currently in Argentina, that I simply had to take the liberty of translating into English and posting..)

All Copyright Domingo F. Cavallo

The Devaluation of Aspirations

The e-mail that a young argentine businessman, who is a very good friend and supported my role in government, obligated me to write about the devaluation of the aspirations of argentines, a subject that pains me since mid 2002. It is possible that other readers have the same concerns as my friend. This is why, without naming him, I transcribe his e-mail and my response (Translators note: I will translate Cavallo's response tomorrow..for today the questions!).

The e-mail I received says:

“Today I read your article on the performance of the IMF during those difficult years. Without a doubt shedding light and we are in agreement that the final result of this entire horrendous history has been disastrous for Argentina and that the so called reduction of the debt a joke….now we owe more than before although over a longer term and at a lower rate, but those “results” would not justify in any way the costs incurred. But there is also something that is a reality and I tell it to you from the daily life of an argentine businessman (now luckily expanded to the rest of Latin America).”

“During the last years of the convertibility regime pegged in the 1 to 1 (for me the only error, since after the successful and historic first years the parity of that conversion ought have been modified, so as to not allow the dissapearance of the local industry, without abandoning the system or breaking the rules), the costs in Argentina had gone through the clouds. I needed to sell hundreds of thousands of dollars per month and with high profit margins merely to cover salaries and expenses. We were completely removed from logic with costs higher than any other developed country while unable to compare ourselves even from afar with them.”

“Today, after this bitter and unjust process, the reality is that with this ultra-high parity, which without doubt savagely reduces the earlier purchasing power, industry functions, grows and exports like never before…trade prospers, thanks to the low dollar costs which are covered with far lower sales, and therefore with far less capital and general risk, and therefore without requiring going into bank debt.. and it is because of that that no one asks for credit. In addition, today everyone pays in full and therefore we are no longer forced to act as bankers.. a complete change.”

”Today we businessmen earn money selling much less than before and the people have not seen their purchasing power lowered so much in reality since the prices of what is consumed daily and the services have not increased as much. The surplus is unimaginable, both fiscal and trade. Of course, traveling is for few…”

“Therefore, I ask myself:
Isn’t it perhaps that the strong purchasing power that the convertibility plan gave our population was too high?
Isn’t it perhaps that the dream of converting Argentina rapidly into a power was a little exaggerated?
Isn’t it perhaps that no poor country or in development grew, if not at the cost of a devaluated currency and only after having truly strengthened itself, by exporting like crazy see growth in real wages and the value of its currency? If not see Korea, Taiwan, and even China..and also India..all countries with which I have been conducting business for 25 years and in which I have seen this process.”

“Today one no longer feels the terrible anguish of having to move large volumes or perish before the costs. Today one no longer feels doubts about “will I sell the same next month?... and if not?” Today we could create reserves to confront peaks and valleys, today we can work more comfortably and peacefully and see the market recover itself very rapidly. And we do it with our own capital reserves…without dreaming of indebting ourselves or having to take capitalist partners so as to not succumb to the pressures of a demand we could not satisfy that rapidly.”

“It is true that today’s poor are super-poor and that there is a large obligation with (debt to) them. My parents are retirees and without the help of me and my brothers they could not live, all that is true, but was it possible to maintain the earlier bubble while remaining the “developing” country we never ceased to be?”

“These are reflections I put to you with the best wishes, in a constructive critical spirit in order to take something positive from the negative of this whole process.”

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