Argentinian foreign debt, illegitimate and illegal (part 2)

Nestor Miguel Gorojovsky Gorojovsky at
Sun Aug 27 18:19:09 MDT 2000

Other sources have now appeared for the flight of capitals.
Economists at the Fundación de Investigaciones para el Desarrollo
Económico (FIDE) have established that foreign companies have
extracted 12 billion dollars on the sly through the following tricks
(they also are not mentioned in the ruling):

* Each time a sum of dollars is invested in Argentina, it appears on
the books as a "loan from Head Quarters" to the Argentinian branch,
with the interests of the case.  They thus conceal as "payment of
interests" a good fraction of capital flight. Those interests appear,
at the same time, as "expenditures", so that they keep for themselves
the income tax.

 * When the Argentinian branch purchases commodities from the Home
Office, these are sold at outrageous prices (in some cases, products
whose international price is of $40 a kilogram were paid at --$ 1,850
a kilogram!!!!!!); this trick brings about the same consequence:
dollars are extracted and taxes are evaded.

* The Argentinian branch appears as if it were paying “royalties” to
its own Home Office for brands and technologies used here.

Summing up: dollars came here and left here through the most diverse
channels, for the exclusive benefit of a few "friends" (at home and
abroad}.  This is the way our foreign debt was nurtured, leaving
nothing to us.

1.3.- The banking procedures that built up the debt

The sentence by Judge Ballestero mentions many instances of irregular
(in fact, almost always criminal) manoeuvering. These manoeuvers were
performed by people in charge of the Central Bank and the Ministry of
Economy, with the end of acquiring a debt with no control whatsoever
and hidden from the public. In the indorsements scandal authorities
of the Banco de la Nación and the former National Bank for
Development are also involved. A brief summary of these tricks
includes some such as:

1.-  Many loans were approved by the Central Bank through _secret_
(!) acts.  These are eleven in total. When the Judge asked for these
acts to be presented, the authorities of the Bank refused to comply,
and they are still refusing.

2.- “The Central Bank keeps no accounting record of foreign debt, and
manages data only to statistic ends”, declared before the Judge the
then President of the Bank, Dr. Adolfo Diz.  With due respect, then,
they were just keeping a grocer's notebook where each loan was
written down...

3.- The Ministry of Economy didn't even record the debt for
statistical ends.

4.- When same Dr. Diz was interrogated by the Judge where were some
loans -which were undocumented at all, and didn't even have even a
"statistical" record- registered, he answered -seriously although it
sounds as a practical joke- that there existed "a black notebook”.

5.- The experts complained that the Central Bank as well as the
Ministry of Economy, the Banco de la Nación and the former BANADE
withheld information and obstaculized their research. These obstacles
are still working.

6.- The President of the Central Bank Dr. Adolfo Diz granted many
credits without due acceptancy from the Directory, and although the
Organic Charter of the Bank imposes the obligation on the President
to report to the Council afterwards in such cases, he never did.

7.- The Vice-President Christian Zimmermann acted in the same way,
with the added burden that he didn't even report to the President
Rodolfo Diz..

8.- To the above described manoeuvers, it should be added that when
Dr. Domingo Cavallo chaired the Central Bank (1981) he turned public
the debt of private firms, and granted them a generous "exchange
insurance".  These measures blew up the public debt in 13 billion

9.- Neither the Directory of the Central Bank, nor the Ministry of
Economy, performed a research on international economic and financial
conditions, which would have certainly given the final result that it
was not advisable to contract debt (particularly after 1979, which is
precisely when more debt was contracted).

10.- The authorities at both official institutions paid a deaf ear to
reports and criticisms generated by their own technical offices
(Economic Statistic and Research Division, Foreign Sector Division).
They displayed a "careless, unskilful and indifferent" behaviour at
the dangerous increase in the debt.

11.- Increase in private and public foreign debt between 1976 and
1982 was "excessive, harmful and with absolutely no justification
from the point of view of either economics, finance or

12.- The debt was contracted under a military regime, without
Parliamentary control as requested by the National Constitution.

13.- The negotiations with the IMF, which conditioned the debt, were
never made public by the regime.

14.- By January 22, 198r, private companies had obtained foreign
credit -with approval of the Central Bank- for 23 billion dollars: 26
out of the 70 largest debtors were banks and financial companies,
that is companies that borrowed money in order to lend it back in
Argentina (in pesos and at much higher interest rates: these funds
were basically sent to the "financial bicycle").

15.- Private agents (such as Narciso Ocampo and Juan Peralta Ramos
[two of the most paradigmatic oligarchic families in Argentina,
translator's comment])  carried out negotiations for credits in the
name of the Central Bank. The reasons for this irregular procedure,
and the eventual commissions paid to them for their "work" are still

16.- The Central Bank paid higher expenses, commissions and fees than
usual, with no explanation.

17.- Contracts for foreign loans agreed upon and signed in Buenos
Aires were made in English.

18.-The Swiss Bank Union exerted influence, in exchange for some
loans, in order to have the Argentinian state purchase the "Italo
Argentina Light and Power Company", owned by the very Minister of
Economy Dr. Martínez de Hoz, in partnership with the said bank. The
ruling does not mention the additional burden that the company was
bought at a price sevenfold the real one (it had been appraised in 49
million dollars by the constitutional government in 1975, and in
1976, with Martínez de Hoz already Minister, the state purchased it
in 340 million).  [Addenda by the translator: the Alemann brothers
(Juan and Roberto), also members of the economic teams of Martínez de
Hoz and the military regime, and influent economists even since and
also before (Martínez de Hoz, by the way, made his first public
office experience after the gloomy and bloody 1955 "Revolución
Libertadora"), are also in direct vinculation with the Swiss Bank

19.- The Central Bank exempted the National Development Bank (BANADE)
and the City Bank of Buenos Aires (Banco Municipal) from the
obligation to request full legal presentations in exchange for
indorsements awarded to companies that later on failed to honor them,
thus overloading the State with an additional burden.

1.4.- The swindling indorsements

Whoever (person or firm) wants to obtain the indorsement of a bank to
use it as a guarantee for a loan with another bank must comply with
very stringent technical regulations: solvency must be proved, a
patrimony must be shown, superavits in the balances are requested,
utilities that can pay for the loan, rentability of the project for
which the loan is to be contracted, etc. An additional guarantee is
usually requested (a mortgage, generally) by the bank that gives the

But during the age under investigation (1976 to 1983) the Banco de la
Nación, the Banco Ciudad de Buenos Aires, and the National
Development Bank (BANADE) granted 240 indorsements, with direct and
express approval from the Ministery of Economy and the Central Bank,
without any of these requirements. Many of these were not honored by
the receivers of the indorsement, and the State had to pay in their
stead.  The Ministery of Economy, furthermore, did not prosecute the
swindlers in order to recover the money that Argentina had had to pay
for their financial miscarriage (no juridic action has been engaged
against them in all these years). The state didn't resort to the so
called "right to excusion", according to which the indorser can
request from the judge that the goods of the debtor be auctioned
first and, if they are not enough to pay for the debt, only then the
indorser is summoned to answer for it.

If the names of the swindling companies are taken into account, the
situation of the Martínez de Hoz team becomes still more serious.
They are not humble, small or medium sized firms. We are speaking,
without a single exception, of companies of the largest size:
Acindar S.A. (personal property of the Martinez de Hoz family,
chaired by Gral. López Aufranc, a member of the previous military
dictatorship of 1966-1973, Acindar contracted loans in order to buy
its competitors Tamet and Hierromat out of the Argentinian steel
market), Autopistas Urbanas S.A.- AUSA (a crooked agreement between
Spanish capitals and the military in charge of the City of Buenos
Aires that commited another swindle by building a horrible and
roguish freeway across Buenos Aires), Covimet S.A. (another freeway
building scheme), Parques Interama S.A. (a soon bankrupted, American
capitalists-owned, thematic park in a ridiculous location), Aluar
S.A. (monopoly of Argentinian aluminium), Papel Prensa  S.A. (jointly
owned by the newspapers _Clarín_ and _La Nación_, this company
monopolized production of paper for newspapers in Argentina), 
Induclor  S.A. (chemical industry with tax exemptions), etc.

Indorsements were awarded for a sum total of 6.5 billion dollars. The
defaulted ones summed up 1.405 billion. 1.5 billion of the sum total
of 6.5 were awarded to a single group:  Celulosa Alto Paraná,
Celulosa Puerto Piray y  Papel del Tucumán.

1.5.- The main culprits

Eight people are mentioned by the sentence as the main culprits of
this swindle (there is no other way to call this) against Argentina.

Firstly and foremost. Dr. José Alfredo Martínez de  Hoz. He is
immediately followed by the other three Ministers of Economy of the
Military Process,  Drs. Lorenzo Sigaut,  Roberto T. Alemann and Jorge
Wehbe. [Dr. Alemann had already demonstrated his abilities during a
short term in power under the wing of hydrophobic right-wing military
in the early 60s, when he concocted what he called a "preventive
devaluation" in order to have himself and friends collect an enormous
amount of dollars through, er, "regulated speculation" should we call
it? Dr. Wehbe had been the last Minister of the previous military
regime, an expert in cover-ups evidently, note by the translator]

Judge Ballestero points out that the same degree of responsibility,
is shared by the consecutive four Presidents of the Central Bank of
same period, Drs. Adolfo  Diz,  Egidio Iannella, Domingo Felipe
Cavallo and Julio González del  Solar.

A special comment is made on the behaviour of our current (august
2000) Minister of Economy, Dr. José Luis Machinea,  who acted as
Manager of Public Finance in the Central Bank during the whole
military regime.  He is found guilty of  “non compliance of his
duties as public official”. Reports by the experts are still harder
against Machinea. Dr. Sabatino Fiorino of the College of Law in
Buenos Aires agrees with other experts in declaring that:

* "there was connivence (of public officials) and the presumed
creditors in the tramitation of the public debt...
*ït is my personal conviction that Dr. Machinea has been an
outstanding element in these events. Without his active
participation, or his passivity, according to the situation, the
contracts would have been impossible to sign"
* "Machinea was in charge of technically justifying the indebtedness
of YPF"
* "The fault incurred by Machinea when he did not disclose the
arbitrary relationship between creditor and debtor is impossible to
* "This places on Machinea the ensuing burden of responsibility, and
makes it necessary that he is not allowed to take part, in the name
of our country, in any negotiation whatsoever implying any form of
acceptancy of the legitimacy of our debt"

Other individuals signaled as particularly important culprits are:

Cristian Zimmermann (ex Vice-President of the Central Bank), Enrique
Folcini and Francisco Soldati (former Directors of the Central Bank),
and  Guillermo Walter Klein (Vice-Minister of Economy of Martínez de
Hoz). Dr. Klein, it should be noted to point out the independence of
the Judge and the experts, is the son of the economist of same name
who proposed the expert Dr. Tandurella. He also is, or was, partner
of the son of the lawyer, reactionary journalist and grey eminence of
many gorilla regimes Mariano Grondona in the legal firm “Estudio
Jurídico Klein-Mayral”. The premises of this firm were legally
searched by order of the Cámara de Diputados (House of
Representatives) of the Nation in 1984, because there was evidence
that this firm kept record of documentation that would prove the
connivence with foreign banks. A judge ruled later that the documents
had to be returned to Klein, and the investigation of the House of
Representatives reached nowhere.

The ruling also makes every high officer in the MInistery of Economy
and the Central Bank of those times responsible.

1.6.- Additional burdens

Dr. Ballestero comments in his ruling that the gravest circumstances
are still more compromising for the executors of this national


The regime, through the Ministery of Economy and the Central Bank,
requested or forced others to request loans that we did not need at
all. The dollars thus obtained were deposited by the Central Bank in
foreign banks, which paid an interest notoriously below the one we
had to pay ourselves for the same dollars.

Thus, only during the five months that go from july to november 1976,
the Central Bank obtained credits for 22 million dollars, at a rate
of 8,75%. These dollars were immediately deposited in the Chase
Manhatann Bank of New York, at a rate of 5,60%.

These dollars of ours, at so low an interest rate, were afterwards
used by the Government of the United States of America to finance at
a very low cost its own fiscal deficit.  We shall later on see that
this very Anglo-American government, all the foreign banks that are
our creditors, the IMF and the World Bank were the ones who "advised"
us (actually they forced us) to get indebted between 1976 and 1983,
against our convenience and necessities.

The case appeared not once, but many times, that a credit was
received from, say, a bank "A" only to be reinvested _in the same
bank_ which thus obtained an impudent profit from the differences in
interest rates.

All this wrecking management of credts and deposits attains the most
shadowy hues when we remember that Dr. Martínez de Hoz was, at the
same time, Minister of Economy and a member of the International
Advisory Council of the Chase Manhatann Bank of Nueva York.


Every civilized country in the world where the state signs up a
contract with a private foreign firm establishes -particularly when
the contract is signed in the very territory of that state- that it
is the local judiciary that must take intervention in case of a
difference or doubt on the terms of the agreement. This was expressly
established in our law.

The military regime was yet in the bud, and Dr. Martínez de Hoz
obtained a reform to this regulation. The government was thus allowed
to sign contracts with private foreign groups while allowing the
latter to decide which judge would be to decide in case of
litigation. In the language of law, this is known as "jurisdiction

Private individuals do quite usually resign their right to be judged
by the courts that are mandatory by law, but very few cases are known
in world history where a state makes this decission. And these cases
are always of countries that have been defeated in a war. A state
cannot lift the ban on judgement by courts of a different state,
because this is part of its sovereign power, thus of national
sovereignty of which the state is only a depositary.

Of course, each creditor bank chose the courts of its own home
country. Thus, any claim we might want to do for our foreign debt
must be taken to judges in New York, or in London, or in Tokyo,
Frankfurt, and so on.

This may be one of the greatest harms inferred to Argentina by the
process of the foreign debt, not only because of the loss of
sovereignty implied, but also due to the economic consequences that
we shall analyze further ahead.


We have already stated that the Ministery of Economy forced public
utilities to get indebted in dollars. Many of these companies lacked
any property in foreign country. Others had it.

It was in the interest of the foreign banks, in order to have us
further subject to their will, that all of the state companies
indorsed each other for the credits contracted by any of them (this
is known as "indorsement crossing"). And the Minister of Economy of
the military regime gladly accepted this arrangement. All the state
owned firms thus became indorsers of each other.  Aerolíneas
Argentinas, whose planes flew to many places the world over, thus
became an indorser for, say, OSN or SEGBA (sewage works, power
utilities), whose property was exclusively in Argentinian territory.
If the debtor (OSN or SEGBA) defaulted payments for a loan, the
creditor bank could seize the planes of Aerolíneas at whichever
airport in the world where these planes landed. None less.

All the above explains why Judge Jorge Ballestero, in the concluding
words of his sentence, establishes in harsh damnatory wording that

"since 1976 our country has been put under the rule of foreign
creditors..., under the supervision of the IMF and the World Bank...
by means of a vulgar and aggraviating economic policy that forced
Argentina to kneel down... in order to benefit national and foreign
private firms, to the detriment of publicly owned firms".

The judge, however, condemned nobody, because due to the passing of
time (18 years) the action has prescribed. It is our point of view
that this can be contested, and we shall try to go for an appeal.

It is worth pointing out that from the interested sectors of our
society we are permanently preached that the "foreign debt must be
honored".  But, if we consider things in an objective way, and we
agree to the irrefutable amount of evidence that has been summed up
in this process, this is not a "honorable" debt. And much less
honorable were the creditors and the Argentinian officials who signed
it. Why should WE be honorable then?.

There is only one truth here: that while it is not shown otherwise,
the only honorable ones in this national tragedy are the Argentinians
on whose shoulders falls the burden of payment.

2.- Can we pay the foreign debt without provoking enormous harm on
our economy and our people?

Moral principles, as well as universally accepted Law, prevent a
creditor from claiming redress of a credit if this redress implies
great harm to the debtor. This rule is respected the world over, and
William Shakespeare the greatest poet and playwright in English
language (the language spoken by our most powerful and exacting
creditors) wrote, 400 years ago, _The merchant of Venice_ a play on
the coldness with which an insensitive and unhuman creditor claims
for "a pound of flesh" of his debtor as a payment, when the debtor
runs out of money to "honor his debt.

Ït is not an exaggeration at all to state that creditor banks are
today cashing their credits with a pound (or many pounds) of flesh
from our own people. 55 Argentinian children die each day out of
malnutrition. It is unnecessary to expose the suffering of our
retired grandparents, of the unemployed, of the underemployed, of
those who go for eventual jobs so that their families do not die of
hunger, etc. Those social cancers, we have shown this above, are the
direct and ineluctable byproduct of the 11,7 billion dollars of
interests we have to pay year after year for the foreign debt.

This enormous bill of interests takes away, additionally, almost all
the money we should put to productive investment, to development of
our economy, and to the creation of new jobs.

Students of Law, on the other hand, learn that when a debtor is
weaker than the creditor, and the creditor demands the greatest
sacrifices in order to have the contract honored, the debtor is free
from honoring the contract. This case is known as "the gravest
injury". We are suffering a clear situation of "the gravest injury".
We are exempt from payment, both on the moral and the legal ground.
The problem is that if we wanted to make this right good, we should
go and state our claims at the Courts of New York, London, Frankfort,
etc., thanks to the irresponsible "extension" accepted by the rulers
of the Proceso.

No Argentinian is fool enough to expect those Courts to rule that
right is on our side, even though it actually is. Such is the
seriousness of the "extension" obtained by Martínez de Hoz and his
team. This is one of the most terrible things they did to us: they
tied us, feet and hand, with a hard rope.

3.- Are we actually indebted, yet?

Our debt began an abrupt and incresingly fast upwards movement
immediately after the March 24th, 1976, coup d'etat. We shall see

There was by those times an unwritten, but universally accepted,
rule, on the amount of the interest rate: it could not be higher than
one or two points above the inflation suffered by the currency of the
loan. By those times, an Argentinian economist who headed the United
Nations Economic Commission for Latin America and the Caribbean
(ECLA),  Dr. Raúl  Prebisch, publicly stated that "The country that
accepts to pay interests of three per cent above inflation will go

In 1979, when our debt had already risen to many billion dollars, the
USA substantially raised the interest rates in dollars, as an attempt
to curb inflation.  Up to this moment, we were paying rates of
between 6 and 8%. This one-sided decission of the Anglo-Americans
took us to pay, during the 80s, rates of even 22% a year. When a debt
suffers such an interest rate, it doubles by itself in less than four
years. And this was what happened to us.

Drs. Alfredo Eric Calcagno and Eric Calcagno have computed that, if
we had been consistently paying an interest rate of about one or two
points above the inflation in the USA, we would have finished paying
our debt in 1988!

The former President of Perú, Alan García, has at his turn calculated
that this one-sided and unjustified raise in the rate of interest,
Latin America, which in 1979 was indebted for 191 billion dollars,
has been paying interests since that year for 1,165 billion! And in
spite of that, in 1999 we are still indebted for 750 billion! These
figures speak for themselves: We Argentinians have paid for our debt
twice if not thrice, and we are still indepted for 200 billion

The drama, however, is performed again: which Court, in New  York,
London, Tokyo or Frankfurt, will bend to our right? This question,
then, begs the following one:

4.- Are our creditors innocent, or they share some guilt in this
tragedy that affects us?

Let us allow Judge Ballestero to speak again:

* It is imposingly notorious that the international financial
institutions displayed a permisivity that was equalled by the
attitude of the foreign banks that are now demanding that the
Argentinian Republic pay its credits"
* The IMF is, currently, the main controlling institution for the
behaviour of the international financial system."
*Thus, the exact corresponsability and eventual guilt of the
international financial institutions (particularly the IMF and the
World Bank) must be established, as well as that of the creditors,
because during the whole period under examination  (1976 to 1982)
many technical missions sent by the IMF visited our country and
analyzed the performance of the Argentinian economy"
*Additionally, technical missions from the World Bank came to our
country with identical ends and to discuss the financial side of
different projects"
*What was the advice given by the IMF and the World Bank on the
Argentinian economy and its degree of foreign indebtedness?"
*The banks were very interested in those years to invest their funds
in developing countries, and they were not interested either in the
destination of the funds, nor in the ability of payment of the
*The conclusion is extracted that the creditor banks, the IMF and
the World bank acted with imprudence themselves, and that they
awarded loans with an overruling urge to somehow place the funds
generated by the apogee of oil industry."

Dr. Ballestero states in his sentence, with the greatest accuracy,
that the foreign banks were in 1976 eager to somehow or another place
the gigantic amass of money that they were receiving from the oil
producing countries. It was under these circumstances that they
"convinced" Dr. Martínez de Hoz and his team (and the ruling
military) that it was a great deal if you took money at 8.75% and
then placed the some money at 5.60% at the very same bank that gave
you the money...

Then, when the USA -because of their own problems, which we had had
nothing to do with- needed to raise the rate of interest in dollars,
we were the ones to pay for the broken China.

What remains is recent history.

Now we shall have to act with decission and ability. It is not an
easy issue, but it isn't unsolvable either.

The first step we must take is to understand that this is not an
economic problem, that this is a politic problem. Without enough
national power, it is useless to expect a succesful outcome.

There are solutions, but in order to get to them, we Argentinians
must begin to find an organization that sticks us together again.

Néstor Miguel Gorojovsky
gorojovsky at

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