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Former Argentine leader indicted for 2001 bond swap

Friday, September 29th 2006 - 21:00 UTC
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A huge Argentine bond swap that was presented at the time as a financial coup led Thursday to the indictment of former President Fernando de la Rua and his economic helmsman, Domingo Cavallo.

Judge Jorge Ballestero said the deal engineered in June 2001 by De la Rua, Cavallo and co-defendants Daniel Marx and Jorge Baldrich was "highly damaging" to Argentina.

The magistrate, who accuses the four former officials of "fraud in public administration," suggests the nearly $30 billion bond swap ended up costing Argentine taxpayers more than $40 billion.

Ballestero said in his case summary that De la Rua, Cavallo, former Finance Secretary Marx and erstwhile treasury chief Baldrich acted with "absolute consciousness" that the swap was contrary to the national interest.

"Through their action the state substituted one (debt) payment schedule for another in which, to secure financial relief of $12.84 billion through 2005, the repayments due by 2031 increased by more than $55 billion," the judge wrote.

He said it was "absolutely predictable" Argentina would default on the massive debt - as happened in late 2001, after De la Rua was forced from office by protests - and that the short respite secured by the bond swap came at the cost of "enormously and unjustifiably" increasing the nation's debt.

Ballestero flatly rejected De la Rua's contention that the court has no right to subject him to a criminal trial for what the former head of state called a "bad politico-economic decision." "To hold that a deal of such magnitude, in which internationally recognized economists such as Cavallo and Marx took part, failed only because of a press operation or was a bad decision, would be, at the least, ingenuous on my part," the jurist said.

Besides indicting the foursome, Ballestero froze large chunks of the men's respective assets, with the sums ranging from nearly $10 million each for De la Rua and Cavallo to $8 million for Marx and $3.2 million for Baldrich.

Former lawmaker Mario Cafiero, one of those who brought the original criminal complaint in the case, welcomed the indictments as the "first concrete step against the financial impunity that has reigned in Argentina for 30 years." "Now we must move toward nullifying that part of the debt which all of us Argentines are paying. The next step should be investigating how the bankers benefited from this maneuver," he told reporters.

In testimony before Ballestero two weeks ago, De la Rua, who was hounded from the presidency by unrest that claimed 30 lives, defended the mega-swap as a "licit act" undertaken to avoid a debt default.

Prosecutor Federico Delgado says he wants to subpoena - as potential defendants - Argentine treasury legal counsel Ernesto Marcer and the man who devised the mega-swap, U.S. banker David Mulford. Currently Washington's ambassador to India,

Mulford was chairman international of Credit Suisse First Boston from 1992-2003. In March 2001, he approached Cavallo, whom De la Rua had just named as economy minister, with the proposal for the massive bond swap.

Mulford and Cavallo had known each other since the former was U.S. Treasury undersecretary for international affairs during the 1988-1992 administration of George H.W. Bush and the Argentine was managing economic policy for President Carlos Menem.

Cavallo, who had worked with Mulford and CSFB in the mid-1990s on a major privatization and bond issues, ultimately agreed to the swap idea, despite warnings from the International Monetary Fund's then-chief economist, Michael Mussa, that the deal would leave Argentina worse off.

CSFB and the other firms banks and investment houses that played a role in the 2001 mega-swap, including heavyweights Santander, HSBC, J.P. Morgan and Salomon Smith Barney, collected fees in the range of $100 million. Those fat commissions were cited by the lawmakers and attorneys who first approached Ballestero in 2002 with a request to pursue criminal charges against the policymakers.

The nation's leaders were elated in June of 2001 after the world's capital markets responded positively to their initiative to swap the nearly $30 billion in short- and medium-term public debt for longer-term bonds.

"Argentines have won out against the pessimists and those who were betting against out country," De la Rua said after the transaction was concluded.

Categories: Mercosur.

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