Importance of De la Rúa's Mega Swap

It was a debt swap procedure that prompted the government of the Alliance, headed by President Fernando De la Rúa, between 1999 and 2001, and implemented by Domingo Cavallo, the then Economy Minister and creator of the Convertibility plan in force during the 1990s.

Public debt bonds were exchanged to reduce the deficit that was eating away at the nation's finances

The devised mechanism proposed postponing the payments of some 20 billion dollars in principal and interest maturities, but in the exchange the country was unable to nothing favorable but quite the contrary: a significant increase in interest and capital owed and the payment of millionaire commissions to the banks that placed the bonds.

The agreement that gave life to the Megacanje was signed by Cavallo and former US Treasury Secretary David Mulford.

Some 46 bonds were exchanged for another 5 and a payment deferral was achieved until 2031.

But far from bringing financial calm to the country, it generated very expensive interest and commissions that raised Argentina's debt to some 55 billion dollars.

A direct exit… to the crisis

The amount of external debt increased by billions, becoming one of the financial operations that ended up suffocating the critical situation economy of Argentina and that led to "the crash of 2001" one of the most serious institutional, social, political, and economic crises that has ever crossed the nation.

A business and a bailout to the banks?

Cut in public salaries and pensions, massive flight of dollars abroad, corralito and corralón tax imposed on savers, and the resignation of President De la Rúa, leading to a sharp void of can, were other of the disastrous consequences generated by an agreement that never brought financial or economic calm.

Of course, it was a succulent business for seven banks that obtained some 150 million dollars in commissions, including the bank owned by Mulford himself.

Officials as alleged accomplices but dismissed

According to justice that intervened in the legal case that was initiated against those responsible for said mechanism, the procedure acted as a screen to saving the portfolio of the financial institutions involved in it and the public officials who intervened in its creation were accused of promoting the increase in public debt and of having benefited a group of friendly banks with the collection of the aforementioned millionaires commissions.

Justice, in 2006, began a long process in which the former president of the nation Fernando De la Rúa, Domingo Cavallo, and Mulford, among others, for the mega-swap scam, however, in 2014 they were all dismissed.

For his part, the former president, defended his actions and the procedure, arguing that it was a resource created to get hold of time and overcome the crisis unleashed by debt maturities, and also to prevent Argentine reserves from being seized.

Fotolia image: Andrea Izzotti