When did we start talking about “country risk”? When Mingo dreamed of starting 1 to 1 and the euro

“Let’s go with the euro”.

February 2001. Closed door meeting at the JP Morgan Tower in Manhattan. Domingo Cavallo told a group of investors it was time to change the 1 peso = 1 dollar ratio (Convertibility) in Argentina. And that the current legal scheme should take into account the price of another currency, in addition to the dollar. “The euro”.

The market has received the news in the best way.

It is that the ‘danger’ of Argentina in those days was not a depreciation of its currency as had happened in other experiences. Rather it was if the country had the dollars to repay its debts without the possibility of devaluation. And Cavallo thought that if the peso fluctuated between two bands (euro and dollar), well, repayment possibilities have improved because such weight was too much appreciated. Ergo, there was a risk of non-payment.

The traffic light that measured that fear was none other than the difference between the ten-year bond yield of a US Treasury bond and an Argentine bond. It was 900 points at the beginning of 2001. We started talking about country risk.

JP Morgan analysts poured the words of the then-former Minister of Economy into a note to their clients. The terror has begun.

José Luis Machinea was the Minister of Economy at the time. Within weeks he was gone. Ricardo López Murphy arrived, who also left early and Cavallo arrived with the idea of ​​the euro under his arm.

“The dollar was very expensive”once he explained.

At that time, 90 cents were received for every euro. In 2008 this ratio reached 1.5. This week it fell back to 1 to 1. Today we are talking about a strong dollar again.

“We were in the midst of a financial crisis in 2001,” Cavallo recalled Economic-, the expectations between bondholders and depositors were of doubts about the repayment capacity of the economy “.

Within a month, in April 2001, Cavallo stages a road show with his idea of ​​the euro. He was even before sending the bill to Congress to expand convertibility and was sanctioned in the Senate (June). His team accompanied him on his tour: the economists Daniel Marx, Guillermo Mondino and Federico Sturzenegger.

Marx, who negotiated with creditors, saw from the trenches how the noise of the proposed expansion of convertibility has raised country risk and market fears.

The first stop on that road show was in a 22-story building in Manhattan, very close to JP Morgan’s where he had gone in January. Cavallo had breakfast at 33 Liberty Street, in the Federal Reserve building, with its president, William McDonough, and a dozen other bankers, including William Rhodes, of Citibank. Between coffee and fruit salad, he told them about his idea of ​​changing convertibility by introducing the euro and explained why this would be beneficial for Argentina. Those present took note without comments.

His second speech took place at the Central Bank’s monetary conference in April 2001. He participated in a table entitled “Ministers of the Economy of Convertibility”. I had just landed from the United States.

Machinea, Roque Fernández and López Murphy were seated. Horse walked in the middle of a corridor and stepped on a red carpet, just like a leader. After listening to them and telling them “They did not understand convertibility”explained his idea of ​​the euro. “If that had been the Argentine monetary system towards the end of 1993, this crisis of fruit production and regional economies it would not have occurred or its impact would have been much less“.

Finally, Cavallo flew to London. When he arrived, he read that the Financial Times and The Economist, two of the three most prestigious business publications in the world, argued that Cavallo wanted to change the one element that gave stability to the Argentine economy and that It would be a mistake: the introduction of the euro.

Cavallo requested a car and drove to the FT office, which was then on London Bridge. He talked to the editors of the paper about why it was a good idea to introduce the euro into convertibility. The Financial Times ran an article about him the next day in which he defended his position and responded to criticism.

Country risk had already exceeded 1,000 basis points. Argentina overtook Turkey and Brazil for the first time. “The markets understand neither the politics nor the real economy of Argentina”Horse said to London.

In those days, on April 19, 2001, Néstor Kirchner announced his candidacy for president for 2003. He was in the Union and Benevolence circle. In the front row were Alberto Fernández and Cristina Fernández. Kirchner was in favor of 1 to 1.

The euro has finally reached 1 to 1 as Cavallo thought. But it happened two years later. “Trichet told me that the euro would appreciate,” Machinea said some time later. Jean-Claude Trichet was then president of the Central Bank of France. And a couple of years later he would become president of the European Central Bank.