Plan Bonex: from the desperation of Erman González to the rise of Domingo Cavallo (part II)

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Plan Bonex: from the desperation of Erman González to the rise of Domingo Cavallo (part II)

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Antonio Erman González, Minister of Economy at the end of 1989

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“What are we going to do?” Carlos Menem questioned his cabinet in the last days of the 1990s.

—Let’s go to Plan Bonex— Domingo Cavallo replied.

See also

Plan Bonex: what it is, why it was kept as a great secret and how it happened (part I)

See also

Plan Bonex: what it is, why it was kept as a great secret and how it happened (part I)

The Minister of Economy is Antonio Erman González. Cavallo, the chancellor. González followed the economist’s recommendation.

The Bonex, since it was baptized forever, was actually conceived a few months before, specifically between October and November 1989. Roque Fernández (he designed it with Guillermo Calvo and Felipe Murolo, the three BCRA staff members), Cavallo and Guido Di Tella joined the idea with González himself. But he disliked it and rejected it.

A month later, with inflation accelerating and approaching 50% per month, González immediately turned to Cavallo (Roque Fernández was no longer at the Central Bank. In fact, he resigned after González rejected Bonex).

Cavallo was lying and healing in Córdoba when he answered González’s call.

“I started to have a little pain in the side of my abdomen. I had gallbladder surgery in Buenos Aires and I went to Córdoba to recover. There I spent a vacation. When Erman called me desperate at home”said the former minister. “He told me that Menem was very anxious. It was the afternoon of the 31st.”

Cordovan suggested that because of the seriousness of the situation and the violence with which the problem had grown, there was no time to think new. And that’s the best thing is to continue Roque Fernández’s project.

—Find Roque— he commanded her.

Savers line up in front of banks when the Bonex Plan is announced in January 1989. Waiters serve coffee.

Savers line up in front of banks when the Bonex Plan is announced in January 1989. Waiters serve coffee.

Cavallo called Fernandez’s parents’ home. The Cavallos and Fernández are from Córdoba. His children were economists, they studied at the University of Córdoba, they helped Peronist governments and studied US Mingo at Harvard, Roque in Chicago.

“Roque is in Central America”Cavallo heard on the other end of the phone.

Fernández responded the next day to the chancellor’s call. He told her he could not go back. I do consultancy for the IMF.

Erman González called Cavallo again the next day. The chancellor explained that Roque is now abroad. The Minister of Economy told him that since there was no time, he would pick him up on the presidential plane via Córdoba. He was in La Rioja with Menem, who kept asking if he had made progress in lowering inflation.

Cavallo began writing the plan right there with the help of his children. The next day he showed it to Erman on the plane.

-We have to do this- Told him.

—Who can help you? –Erman asked.

El Mingo mentioned Murolo and Carlos Sánchez.

Cavallo thus imposed himself as de jure Minister of Economy in the cabinet, although González continued to be formal. Even the economist dared to suggest another proposal: the Bonex Plan had to be implemented along with convertibility. The idea is not only to reschedule the maturity of deposits for a ten -year Treasury bond, but to avoid also that people continue to lose weight.

In the end, the latter did not thrive. González’s deputy minister, Eduardo Curia, suggested “advancing towards a free convertibility scheme between austral and dollar” and on January 2, 1990 the minister just announced Bonex. Curia resigned and left. The impossibility of negotiating a backup loan in the US and a devaluation in Austral before ‘setting the anchor’ deactivated the move.

Cavallo, in the shadows, is already emerging as Menem’s strong economic man.

“But chancellor,” he asked. Clarion at the beginning of January 1990-, a small saver, someone with 2 or 3 million australes in the bank, who planned to use that money for a vacation or whatever, Now you are not free to throw away those savings. The government grabbed his pockets, didn’t it?

—No, Bonex can be converted at any time— Cavallo replied.

“But if they do, they’ll lose a lot of money.”

That’s why I recommend that you don’t convert them as soon as possible. It is convenient to have them until the parity is close to par. No need to be afraid.

Bonex’s equity was approximately 52% when the operation was performed and affected US $ 2.5 billion, which are all fixed terms in the system. Deposits placed in seven days are rescheduled for ten years. Once it was delivered, the price of Bonex fell to 19%. But after two months it was worth almost 40%. And the titles paid an annual yield of 8.4% in dollars and twice a year. The securities are issued under U.S. law.

A year later, Bonex passed 70% of parity. The title holders recovered all and they earn more than 20% in dollars.

A year later, Cavallo was the minister.

Source: Clarin

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