Diablo Domingo

Why did Wharton invite the man who wrecked Argentina’s economy?

by Gerardo Razumney and Mariano Sana

Would you invite Ken Lay to give a talk about corporate ethics? Answer: No way! How about Slobodan Milosevic on human rights in Bosnia? Ethnic tolerance? Answer: Never! And how about having Domingo Cavallo over to discuss his views on the economic situation in Argentina? Answer: Who’s that? Domingo who?

Last month, the Wharton Latin American Conference, held at the Union League, sported Domingo Cavallo as its keynote speaker. Cavallo had been the principal figure in shaping the economic policies that eventually brought about the meltdown of the Argentine economy at the end of 2001. However, consistent with its current drift away from international news, The Philadelphia Inquirer found the event irrelevant. So, who's Domingo Cavallo?

Cavallo was the finance minister of Argentina in two periods. During his first tenure (1991-96), he implemented a fixed exchange rate, pegging the peso to the U.S. dollar at a one-to-one ratio. At the time, Argentina had accumulated enough reserves to back such a plan -- in other words, it had enough dollars to buy all the existing pesos at one dollar each. The plan was a response to rampant inflation, and it initially succeeded: Inflation subsided and economic growth ensued. With time, however, the intrinsic flaws of this approach surfaced: The mighty dollar, strong worldwide, was too cheap in Argentina. That translated into widely available, inexpensive imports. Conversely, Argentine exporters were poorly compensated for their products. To protect Argentina's competitive position in the international market, the government implemented a "labor flexibilization" policy, which meant the dismantling of unions and a fall in real wages.

The end result of the fixed-exchange-rate scheme was disastrous; it put pressure on the country's trade balance and the caused the decimation of the nation's industry. Recession followed, and with it, fiscal deficit. The only beneficiaries of the plan eventually were the multinational corporations; they were able to buy, in a virtual fire sale, the manufacturing facilities that at one time had been the backbone of the most developed economy in Latin America. This might be ascribed to Cavallo's incompetence or to his blind adherence to the dictates of the International Monetary Fund -- only he knows for sure. We must emphasize that this outcome was not preordained: Brazil, for example, applied a plan similar to Argentina's, but had to devalue in early 1999. After a few months of macroeconomic turbulence, Brazil's economy recovered. But Cavallo persisted beyond the breaking point.

With Argentina's financial system paralyzed, the economy stopped working. Social unrest evolved into riots that included deaths. Cavallo resigned on Dec. 19, a day before the president did. The rest is well known: Countless citizens are still deprived of their lifetime savings; the poverty rate has climbed to unforeseen levels; Argentina made worldwide news with the largest debt default in history. A few weeks ago, for the first time in Argentina's modern history, children were dying from malnutrition. Argentina's situation resembled the Great Depression of the 1930s in the U.S. It has become fashionable to assume that Argentina's meltdown was a result of rampant corruption. While corruption indeed has been a factor in the decline, it is not a major one. The problem is structural, and profoundly related to the ills of globalization.

Intimately familiar with recent Argentine history, a group of Philadelphia Argentines, including the authors of this article, felt outraged when the news circulated that Cavallo had been invited as a keynote speaker to the Wharton Latin American Conference. Thirty-one of us signed a letter protesting the invitation. We declined signatures from non-Argentines and from Argentines who do not live in Philadelphia. We delivered the letter to the organizers of the Wharton Conference and to Cavallo himself. We requested that the organizers post our letter on the conference's website. They refused, arguing that they had never expressed an opinion about any speaker.

The event took place on Nov. 15. Cavallo had neither moral nor professional authority to give an objective opinion on Argentina's economy. Equally telling is the obvious fact that Cavallo did not have much of value to say to prospective investors. Not surprisingly, during his presentation Cavallo wasted everybody's time defending himself and blaming many others (politicians, the current Argentine government, and especially the press) for Argentina's collapse.

The Wharton Latin American Conference is a major forum where current and future regional leaders gather. If Cavallo is presented as a model at a venue such as this, what can we expect future leaders to be learning?

Mariano Sana is a research coordinator at the University of Pennsylvania’s Population Studies Center. Gerardo Razumney is a consultant. If you would like to respond to this Slant or have one of your own (850 words), contact Howard Altman, City Paper executive editor, 123 Chestnut St., third floor, Phila., PA 19106 or e-mail altman@citypaper.net.