WORLD REPORT PROFILE : Domingo Cavallo : Argentina’s economy czar grabs headlines with tough talk. But his actions speak louder: hefty growth and the lowest inflation in Latin America.

In a stack of Argentine newspaper clippings on Domingo Cavallo’s first four years as economy minister, what stands out is his headline-grabbing propensity for controversy and conflict.

Examples:

In December, 1991, Cavallo blasted the rector of the University of Buenos Aires, declaring that the institution was “very badly managed” with “astonishing waste.” The rector counterattacked in a public letter he titled “Liar Cavallo.”

In October, 1993, two Supreme Court justices filed suits against Cavallo for libel and slander after he called them “corrupt and thieves” in a dispute over lawyers’ claims against the Central Bank.

Last August, he opened fire on Argentina’s newspapers, accusing them of publishing “more than 50 lies every day.”

Many critics have called the balding, sharp-eyed minister overbearing and authoritarian. Cavallo, of course, disagrees.

“I am very straightforward, but that doesn’t mean authoritarian,” he said in his Buenos Aires office, next door to the presidential palace. “In any case, I would say I am a fighter.”

He certainly never hesitates to fight for the free-market policies he has followed to conquer Argentina’s once-rampant inflation, privatize government-run corporations, trim bloated government budgets and fuel rapid economic growth. Cavallo points out that in the past four years, the economy has expanded 32%. Inflation last year was less than 4%--the lowest in Latin America--compared to 2,300% in 1990. Among a welter of Latin American success stories in the mid-1990s, Argentina’s stands out.

Cavallo laments that unemployment has risen to 14% but blames the Congress for not passing a labor reform bill to cut employers’ costs and encourage more hiring.

No one doubts that the hard-charging, 48-year-old economy minister is one of President Carlos Menem’s most valuable assets in his bid for reelection this May. Menem has repeatedly defended Cavallo in moments of controversy.

“Never has the Argentine Republic had a minister of economy like Domingo Cavallo,” Menem told reporters last year. “There could have been an equal one, but never a better one.”

Asked about Cavallo’s proclivity for controversy, Menem said: “Lukewarm or cold ministers I don’t need.”

When Menem took office in 1989, he appointed Cavallo as foreign minister. While the Harvard-trained economist wore a diplomatic hat, the Argentine economy suffered withering bouts of super-stagflation. In early 1991, Menem switched Cavallo to the economic portfolio.

Bingo. Within months, inflation was under control and the economy was growing at a healthy rate.

Cavallo’s bold “convertibility plan” essentially gives Argentina two currencies, the peso and the dollar. All pesos in circulation must be backed by dollars or other hard currency reserves, and everyone is entitled to exchange pesos for dollars at a one-to-one rate.

That, according to Cavallo, means that in Argentina there can be no sudden devaluation like the one that threw Mexico’s economy into chaos in December. Although prices and unemployment have risen under the Cavallo plan, most Argentines seem content with the stability and economic expansion it has brought.

Still, there is controversy. Unions decry Cavallo’s efforts to reform labor law. Farmers complain bitterly that exchange rates slash their profit margins on exports. Retired people demonstrate outside Cavallo’s apartment house, protesting his refusal to raise social security pensions.

The protests hurt. He complains that the controversy upsets his parents, who live outside the capital.

“They suffer a lot,” he said. “This whole thing of disputes, the criticism one receives, the attacks, the fact that on Wednesdays a group of 10 retirees and 20 cameramen go and demonstrate in front of my house--all that scares them a little.”

Cavallo’s mother came to Argentina with her Italian parents at age 2. His father, the son of Italian immigrants, made and sold brooms in a modest shop in the Cordoba town of San Francisco, where the future minister was born and reared.

He studied accounting at the University of Cordoba and received a doctorate in economics there in 1969. During the next six years, Cavallo taught at the university, held various provincial posts and worked as a business consultant. Then he went to the United States with a Ford Foundation fellowship for graduate economic studies at Harvard University, where he received his Ph.D. in 1977.

On returning to Cordoba in 1977, Cavallo became director of a newly created Institute for Economic Studies. The institute is part of the Mediterranean Foundation, a Cordoba think tank financed by private business.

By the early 1980s, Cavallo had built a national reputation. In 1982, while Argentina was ruled by a military regime, he served as chairman of the Central Bank for 53 days. The Argentine private sector was in crisis. Unable to pay their dollar debts, businesses and banks demanded that the government help.

Cavallo and the economy minister resigned, and the government’s next economic team yielded to business demands and assumed the private foreign debt. Later, after elected President Raul Alfonsin took office, some members of Alfonsin’s Radical Party charged that it was Cavallo who had “nationalized” the private foreign debt.

“The Radical leaders were afraid Alfonsin would invite me to be part of his government,” Cavallo said. “They decided to put out the version based on lies.”

Jose Castro Garayzabal, an economist who worked with Cavallo at the Central Bank, recalled that Cavallo would start his days early by reading newspapers, listening to radio talk shows and plunging into public controversy.

“When someone came out making erroneous economic statements, he immediately called the radio station and made an instant rebuttal,” Castro said. “This had the result that in a couple or three months after he took over, people no longer came out making economic statements without basis and knowledge.”

At that time, Cavallo was not associated with Menem’s Peronist Party, which had followed policies favoring labor unions and a large public sector. But in 1987, the Peronists offered him a candidacy for the Chamber of Deputies, the lower house of Congress. He ran as a “nonpartisan” affiliate and won his seat, which he left to become foreign minister in 1989.

When he switched to economy minister, faced with a threat of hyper-inflation, he moved quickly to implement the convertibility plan.

Cavallo has never shied away from battling for legislation in Congress. “Of course . . . many times we have had heated debates,” he said.

A member of the opposition Radical Party, Jose Luis Machinea, an economist and former Central Bank chairman, says of his rival’s bombastic style:

“It is commendable that Cavallo fights constantly to show his ideas, to discuss his ideas. On the other hand, that strong personality has meant that he has made many enemies within the government. . . . What happens is that sometimes his style has been, instead of aiming a rifle and picking someone off, to use a machine gun.”

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Biography

Title: Economy minister

Age: 48

Personal: Born to Italian immigrants in San Francisco, Argentina. Father made and sold brooms. Holds doctorates from Argentina’s University of Cordoba and Harvard University. Married. Two sons and daughter. Hobbies include walking.