Kermit Snelson on Wed, 6 Feb 2002 07:18:25 +0100 (CET)

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<nettime> Report links Bush to Argentina crisis

Headline: Bankers accused of dirty tricks in Argentina
Date: January 28 2002
Author: Jules Evans

Some of the most senior members of Argentina's financial community, as well
as several foreign investment banks, are facing judicial investigations into
accusations of financial wrong-doing in Buenos Aires.

Among those facing judicial investigations are Domingo Cavallo, former
minister of the economy; his deputy minister, Daniel Marx; the seven
investment banks which managed Cavallo's mega-swap in June 2001; and the
Rohm brothers, chairmen of Banco General de Negocios [1] and two of the most
powerful financiers in Argentina.

Cavallo, Marx and the seven investment banks involved in the mega-swap are
facing accusations that the swap was illegal, and that the terms of the swap
were manipulated to benefit the banks involved. The Rohm brothers have been
arrested for illegally taking money out of the country in December.

When combined with the charges of corruption being pressed against
former-president Carlos Menem, the new charges represent a serious
condemnation of the financial probity of a whole regime and those who
profited from it.

Domingo Cavallo was President Menem's foreign minister and then minister of
the economy from 1991 to 1996. He returned to office under President de la
Rua in April 2001, in a bid to rescue the economy from the debt crisis built
up in the years under Menem.

The day he returned to office, Cavallo discussed the possibility of a debt
swap with his friend David Mulford [2], chairman of CSFB International. Half
an hour after discussing it, they had assembled the other managers for the
deal - JP Morgan Chase, BSCH, Banco De Galicia, Banco Frances, SSSB and

In June 2001, the seven banks undertook one of the largest debt swaps ever -
the so-called mega-swap, in which $29.5 billion of old Argentine government
bonds were swapped for new bonds. The swap was declared a success by the
capital markets, though academics said it did not make sense for a country
coping with a debt crisis to make itself more indebted. Mohammad El-Erian,
head of emerging market debt at the US fund manager Pimco, and a former IMF
adviser, says: "The mega-exchange was unfortunate, because it didn't take
into account the longer-term interests of the country." El-Erian thinks the
debt swap may have even accelerated Argentina's default.

Some bankers say Argentina should have declared a moratorium on its debt.
Other bankers were critical of the 0.55% commission charged by the
lead-managers, which amounted to a total fee of around $125 million.

However, the judicial charges brought by members of the Argentine house of
deputies allege that, these reservations about the swap aside, the
lead-managers were also sold new bonds at discount rates which were not
approved by the Argentine parliament.

According to the accusation filed by deputy Mario Cafiero to the Argentine
federal court, Cavallo and other government officials met with
representatives of the seven investment banks in a meeting on Saturday June
2. In this meeting, according to the court accusation, the price terms of
the swap were altered - the price of the old government bonds was raised,
and the price of the new government bonds was lowered. This gave the lead
managers of the deal a total profit of around $150 million, according to the
court accusation. This was in addition to the official commission. While the
official terms of the swap were approved by the Argentine government, the
accusation says that these separate terms were not approved and so are

None of the banks commented on the record, but one spokesman claimed that
political enemies of Cavallo are behind the accusations. Cavallo himself has
told Argentine press that the documents in the investigation are false and
that the investigation aims to destabilize the economy. He and Daniel Marx
are expected to appear in court in front of Judge Ballestro in the next few

Also facing accusations of corruption are Jose and Carlos Rohm, chairmen of
Banco General de Negocios, a bank which played a crucial role in the
liberalization of the national economy under Menem's presidency. A judicial
investigation is looking into allegations that the Rohm brothers helped ship
around $30 million out of the country in December 2001. Carlos Rohm was
arrested last week boarding a plane to Switzerland. Jose 'Puchi' Rohm has
yet to be apprehended but is thought to be in the US.

The accusations against the Rohm brothers are a further embarrassment for
the international banking community, on top of the investigation into the
mega-swap, which they are accused of helping to arrange. On the board of the
Rohm's bank, Banco General de Negocios, is William Harrison junior, CEO of
JP Morgan Chase, and David Mulford of CSFB. The Rohm brothers are very
well-connected internationally - they are friends of Carlos Menem, Henry
Kissinger, David Mulford, and George Bush senior. Jose Rohm is on the
advisory council of David Rockefeller's Americas Society [3].

The charges against Menem and his regime are also another embarrassment for
the Bush family, already hit by links to the unfolding Enron scandal.
Mulford was Bush senior's under-secretary of the treasury, responsible for
the implementation of the Brady debt plan in Latin America in the early
1990s. Bush senior himself had very close links with the Menem regime. He
visited Menem eight times during and after his presidency. Menem was a
frequent guest of the Bush family. When he was awarded an honorary degree by
the University of Houston, Bush introduced him to the audience as a
"visionary". Menem was the only Latin American politician to attend George
W. Bush's inauguration. Neil Bush, brother of George W. Bush, has also
stayed with Menem in Argentina.

Friends of Bush and members of his administration have clearly done well
from Menem and Cavallo's rapid programme of privatization. A close friend of
the Bush family - Tom Hicks - who was one of the largest donors to Bush
junior's presidential campaign, ran a company called Citicorp Equity
Investment (CEI) which for a time was the most active private equity firm in
Argentina's telecom and media industries. One of the partners in the firm,
Raul Moneta, has since been accused of money laundering by a US senate
investigation [4], though he has yet to face official charges. Moneta's bank
is also accused of laundering millions of dollars in bribes made by IBM to
the Rohm brothers' bank in the IBM-BGN scandal of 1994. Moneta's activities
with CEI are detailed in the report's supplementary case histories [5].

The woman behind many of the charges and the investigations that led to them
is Elisa Carrio [6], leader of the ARI opposition party in Argentina, and
one of the most popular politicians in the country. Carrio, a 44-year-old
mother of four, affectionately nicknamed 'La Gorda' (the fat one) by her
followers, has led an anti-corruption investigation into the Menem
government for several years.

It was Carrio and fellow deputy Gustavo Gutierrez's investigation into money
laundering that brought down the former governor of the Central Bank of
Argentina, Pedro Pou, in 2001. Carrio and Gutierrez, brought their findings
to the US senate, which used them for one of the biggest investigations into
money laundering ever in 2001.

It was also partly through her findings of electronic transfers of money
that Carlos Menem was arrested for illegal arms sales to Ecuador and
Croatia. Menem claimed the US knew about the arms sales to Croatia, which
the US denies. Menem now faces accusations that he transferred to a Swiss
bank account a $10 million bribe made by Middle-Eastern terrorist
organizations to cover up a bombing of a Jewish centre in Argentina in 1994,
which killed 84 people. The Swiss judiciary is investigating the charges,
which Menem denies.

Menem is also facing a judicial investigation based on accusations made by
Carrio that 80% of the money which put him in the presidency was from Gaith
Pharaon, the Saudi billionaire and one-time partner of the Bank of Credit
and Commerce International, the Arab bank which was engulfed in scandals and
law suits in 1991. BCCI has since been identified by the US senate banking
committee as having been an important link in the financing network of Osama
bin Laden. The link to Pharaon and BCCI will be another embarrassment for
the Bushes - BCCI had many close links to the Bush family. As the Wall
Street Journal has noted, there are "numerous links among Harken [a Texan
energy company of which Bush junior was a director and major share-holder]
... and individuals close to the Bank of Credit and Commerce International".
The links of various Bush government officials and family members to the
emerging scandal in Argentina are potentially more embarrassing than the
links of the present Bush government to the Enron affair.

It is possible to dismiss Carrio and her party as politically motivated
enemies of Cavallo et al. Supporters of Cavallo and Menem claim the
Argentine economy could have recovered by now were it not for the
destabilizing influence of her party's investigations on the economy.

However, Cavallo was happy to use Carrio's money laundering investigation to
topple Pedro Pou, the former governor of the Central Bank of Argentina, when
Pou opposed Cavallo's proposed changes to the currency regime in 2001. And
the US senate sub-committee upheld and incorporated her findings on money
laundering into their own report.

If the many different charges are upheld in court, they pose grave questions
not only on Menem's regime, but of the wisdom of the policy of rapid
economic liberalization at any cost which Menem pursued, and the support of
this policy by the IMF, various neo-liberal economists and international
banks. Both Menem and Cavallo were until very recently firmly supported by
the IMF, who used the Argentine regime's whole-hearted embrace of the
capital markets as an example to other developing countries. As Horst
Koehler, head of the IMF, said last week, the current predicament of
Argentina's economy is a "failure" for the IMF and the international
financial community. Koelher said: "We did not pay enough attention to the
drifting in the policies of Menem."

The danger apparent in the case of Argentina is that too hasty
liberalization of developing economies, if carried out in the absence of
sound and transparent institutions or government, can encourage corruption,
bribery, capital flight, money laundering, profit for a handful of
well-connected bankers and international banks, and loss for ordinary

The presence of foreign banks do not necessarily improve the functioning of
this process, as has been argued by some neo-liberal economists - on the
contrary foreign banks are often well-positioned to enable capital flight
and money laundering, and to profit from the mandates from excessive
government borrowing and over-hasty sell-offs of state assets.

The role of many ex-public servants in using the influence and contacts made
while in public office must also be scrutinized, if only to dispel the
perception of crony capitalism. Likewise, the wide-spread support by
governments and multi-laterals for Menem and Cavallo is cause for concern -
the policy of rapid liberalization and privatization which Menem and Cavallo
pursued obviously profited foreign business interests. It is less obvious
that it benefited the people of Argentina.

Mario Cafiero, the deputy bringing the charges against Cavallo and the seven
investment banks, sums it up: "Argentina was a chicken that laid golden eggs
for the foreign banks. But the reality is that Argentina has defaulted and
is in serious trouble. The chicken has finally died."


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