Trouble-Shooter for the Economy

Hurricane Cavallo is back. And he could be Argentina’s last chance.

In the month since he became economy minister for the second time, Domingo Cavallo has stormed onto center stage in a whirl of trademark eloquence and vitriol.

Cavallo charmed and browbeat Congress into giving him emergency powers to tackle a fearsome economic crisis. He made repeated red-eye flights to the United States, Europe and Brazil to assure investors and politicians that Latin America’s third-largest economy will not tumble into the abyss and drag world markets down with it.

“I want to tell you that Argentina has begun vigorous growth,” Cavallo told executives in Sao Paulo, Brazil, on Wednesday, reiterating a pledge not to devalue the Argentine peso. “Whoever bets on a devaluation is going to lose a lot of money. . . . I am going to give glasses to the investors so they can cure their myopia.”

For good measure, Cavallo has also accused a Syrian arms trafficker of being Argentina’s biggest gangster, ridiculed stock traders as narrow-minded whippersnappers and scoffed at “delirious” U.S. academics who think that Argentina cannot pay its $88-billion foreign debt.

It’s all vintage Cavallo, a Harvard-trained economist with a bald pate and sharp blue eyes.

Cavallo, 54, displayed his steamroller style during his previous tenure, from 1991 to 1996, when he wiped out hyper-inflation and transformed a moribund economy into a model of growth and modernization.

Then he began an anti-corruption crusade, shaking the nation with well-documented allegations about thievery in the Peronist government of then-President Carlos Menem. Cavallo resigned in disgust, formed his own party, Action for the Republic, and ran unsuccessfully for president and for mayor of Buenos Aires.

Today, beleaguered President Fernando de la Rua hopes that Cavallo will keep his temper and work his magic. With the surprise appointment last month, the president drove another nail into the coffin of the ruling coalition from which he has distanced himself, the center-left Alliance. Many Alliance leaders say today’s inequality and unemployment are the legacy of Cavallo’s free-market reforms.

The Alliance and the opposition Peronists also worry that the aloof, enigmatic De La Rua handed power to a voraciously ambitious “super-minister” who wants to run for president again. Political humorists depict Cavallo as a ventriloquist and De La Rua as his marionette.

In some ways, Cavallo’s persona recalls the man who tamed New York City, Mayor Rudolph W. Giuliani. Both are pugnacious descendants of Italian immigrants, and they don’t mind making enemies. But even their enemies grudgingly acknowledge their intelligence and courage.

And there is a sense here that Cavallo is the man of the moment. In addition to the crushing debt, Argentina suffers from a prolonged recession and a 14% jobless rate, which are especially traumatic because this is the region’s most prosperous society. Cavallo promises that working people will feel the benefit of his policies.

His capacity for hard work will be his greatest asset, as the La Nacion newspaper pointed out recently.

“Cavallo is a formidable producer of initiatives. . . . He works at a thousand kilometers an hour,” La Nacion’s German Sopena wrote. “This is the rhythm that Cavallo sets, and it gives him a good part of his considerable public credibility.”

But there are concrete challenges. Cavallo must tinker with his own creation, the “convertibility” program that pegs the peso to the U.S. dollar. It worked like a charm against inflation but now blocks growth and trade by keeping costs and products high.

Argentines and foreign analysts have reacted with cautious approval to the minister’s recent proposal to modify convertibility by tying the peso’s value to an average of the dollar and the euro, the common currency of the European Union.

As for the political battlefield, Cavallo will inevitably run into resistance.

Criticizing Cavallo’s request for immediate approval of the new currency plan, lawmaker Elisa Carrio--who shares the minister’s volcanic style but not his ideology--snapped: “Cavallo better stop running and sit down to think because, if not, there will be a tragedy. And the president, he better start governing.”