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President Menem Fires Economy Minister Domingo Cavallo

July 26, 1996

BUENOS AIRES, Argentina (AP) _ President Carlos Menem has fired Economy Minister Domingo Cavallo, the chief architect of Argentina’s five-year economic turnaround, presidential spokesman Raul Delgado said Friday.

``The president has asked me to announce that he asked his Cabinet Chief, Jorge Rodriguez, to request that Domingo Cavallo resign,″ Delgado said in a brief statement.

Cavallo, a 49-year-old Harvard-trained economist who took over at the Economy Ministry in 1990, had no immediate comment. He was replaced by Roque Fernandez, the 48-year-old head of the Central Bank.

``We’ll follow the same path as before, but we’ll correct the errors,″ Menem said, later thanking Cavallo for his ``exceptional contribution″ to the country’s economy.

On the Buenos Aires stock exchange, leading share prices, which had begun to slip as rumors surfaced over Cavallo’s future, plunged more than 4 percent Friday.

Fernandez, a low-profile economist who earned a postgraduate degree at the University of Chicago, promised to follow the same track as Cavallo. He said he had ``an excellent relationship″ with Cavallo’s former economic team.

Cavallo’s implementation of Menem’s free-market policies, which tamed five-digit inflation and spurred record growth between 1991 and 1994, were a principal reason for the president’s landslide re-election victory last year. However, their relationship has soured.

But Caballo’s popularity has dropped sharply since the economy slipped into recession last year, triggered by Mexico’s 1994 currency crisis. Unemployment currently stands at 17.1 percent and the gross domestic product fell 4.4 percent last year.

Argentina’s main labor federation, the CGT, has called for a nationwide strike on Aug. 8 to protest the government’s recent economic austerity measures to plug a first half deficit of $2.51 billion.

However, Cavallo’s staying power despite increasing disagreements with Menem and growing unpopularity was seen by many observers as a measure of the clout of foreign investors in Argentina’s economy.

On a visit to Buenos Aires this year, U.S. Secretary of State referred to Cavallo as ``a hero″ for his success in opening up the country’s economy.

Cavallo’s dismissal came in the wake of his latest clash with Menem. The minister objected on Wednesday to a decree to reinstate a two percent tax on certain bank industry transactions.

The tax was eliminated last year as a step toward bringing down interest rates and fueling a rebound in the recession-riddled Argentine economy.

Cavallo, in a heated exchange with the president, allegedly said he would quit if Menem signed the decree. Menem reportedly responded by saying: ``I’m tired of your threats. Don’t push me anymore: if you want to go, go now.″

However, the two later played down the argument, saying it had been blown out of proportion by the media.

In 1991, Cavallo introduced the so-called Convertibility Plan, pegging the peso one-to-one with the U.S. dollar. The law also guaranteed that the government would not print money not backed by dollar reserves.

It became the cornerstone of Argentina’s ensuing economic success story, highlighted by mass privatization of money-losing state companies, and attracted foreign investors back to Argentina in droves.

Cavallo became the third minister to leave the Cabinet in just 16 days. Justice Minister Rodolfo Barra and Defense Minister Oscar Camilion quit over separate scandals earlier this month.

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