José Alfredo Martínez de Hoz
Encyclopedia
José Alfredo Martínez de Hoz (born August 13, 1925) was an Argentine
executive and policy maker. He served as Minister of the Economy under de facto President Jorge Rafael Videla
between 1976 and 1981, and shaped economic policy during the self-styled National Reorganization Process
military dictatorship
.
, Argentina
. Pursuing higher studies at the University of Cambridge
, he returned and in 1955, following the coup against the populist Juan Perón
, he was appointed his province's Minister of the Economy. Though democracy returned to Argentina three years later, the armed forces
continued to exercise vetting power over most policy and in 1963, Martínez de Hoz became one of a series of conservative Argentine Economy Ministers during Jose Maria Guido
's brief presidency (an interlude marked by squabbles among the military brass and recession).
Becoming an influential lobbyist for Acindar, one of Argentina's largest steel manufacturers, Martínez de Hoz became its CEO in 1968. Seven years later, after union laborers at Acindar's Villa Constitución
plant elected a socialist shop steward, Martínez de Hoz retaliated by using his family's long-standing connections with the armed forces to have them brutally repressed. Supported by Metalworkers Union leader Lorenzo Miguel
, security forces abducted the new shop steward, Alberto Piccinini, and about 300 others (most of whom were murdered).
, who deposed Isabel Perón's weak regime in a March 1976 coup. Inheriting a wave of violence and 700% inflation, the new regime called on Martínez de Hoz, appointing him Minister of the Economy. Anxious to restore business confidence, announced a plan to further open Argentina's markets, believing that the country's national industry was inefficient and uncompetitive internationally. He moved to lessen Argentina's trade barriers quickly, which he believed to be a cause of economic isolation. He enjoyed the personal friendship of David Rockefeller
, who facilitated Chase Manhattan and International Monetary Fund
loans of nearly US$1 biliion following his appointment.
He decreed a general freeze on wages, and instituted a value-added tax while rescinding the inheritance tax
. As a result of the changes instituted by Martínez de Hoz, inflation fell sharply; but, many local retailers and home builders became incapable of coping with the fall in demand and declared bankruptcy.
A year later, the billion-dollar trade deficit had turned around and business investment had soared by about 25%. Real wages, however, had lost nearly 40% of their purchasing power, and while consumer spending remained weak, the shock might have been worse but for hitherto high savings rates. Inflation, in turn, revived, and Martínez de Hoz responded in June, 1977, with deregulation of the financial markets, removing checks on banks and transferring responsibility for any bad loans to the state, which took charge of their debt as needed.
The Central Bank, like many key economic posts in the Martínez de Hoz era, was led by one of a number of Chicago Boys
: Adolfo Diz
. Diz enacted much of the Economy Minister's financial deregulation
policy, while moving to limit domestic credit. He enacted the Monetary Regulation Account Law of 1977, which raised reserve requirement
s to 45% of deposits, thereby doubling borrowers' interest rates while eliminating yields on demand deposit
s.
Short-term financial speculation flourished, while chronic tax evasion
and budget deficits remained high. Frequent wage freeze decrees continued to depress living standards generally and income inequality increased.
: fixed, progressively smaller devaluations of the official exchange rate
between the Argentine peso and the US dollar set by a monthly timetable, popularly known as the Tablita.
The Tablita invariably set a slower depreciation of the peso value than what local inflation warranted and although inflation did ease somewhat, imported goods and foreign credit soon became much cheaper than those locally available. Imports almost tripled in volume and by 1980, the peso became one of the most overvalued currencies in the world; its high purchasing power abroad soon had many referring to it as plata dulce ("sweet money"). Record numbers of Argentines now vacationed abroad, often stocking up on appliances; between the suddenly negative trade deficit and tourists' foreign spending, however, this chalked up a then-record US$4 billion annual loss for the national balance sheet in both 1980 and 1981.
Having already suffered from weakened demand, many industries (particularly smaller factories) could not compete with the flood of imports and a second wave of industry bankruptcies began. Ostensibly to avoid a sharp rise in unemployment, Martínez de Hoz took an even more controversial step when he decided to begin absorbing private sector debts (mostly those of the well-connected, including US$700 miliion of Acindar's) into the national debt. One of his chief business interests, the insolvent Compañía Italo Argentina de Electricidad, was nationalized at his orders at a reported cost of US$394 million.
The economy was still in relatively high gear and, with rising fiscal revenues, the nation's finances appeared healthy during 1979 and 1980. Secretly, however (as much of this data was censored at time), local speculators were taking advantage of the overvalued peso by taking up over US$30 billion in loans overseas. This money soon found itself in risky gambles at home and abroad and when one bank's Ponzi scheme
collapsed in March, 1980, Martínez de Hoz responded to the possible panic by luring investors with one-year treasury bills
, paying 60% in US dollars. Facing these pressures, the Argentine peso increasingly became the object of short-selling by insiders
, including Martínez de Hoz himself.
. The Tablita was shattered and he retired the following month.
What followed was one of the worst financial crises in the history of modern Argentina. Speculators quickly took advantage of the 1977 deregulation to write off their debts, legitimate borrowers (including many large employers) were faced with suddenly unaffordable US dollar payments and homeowners' monthly payments (tied by the Circular 1050 to the value of the Dollar
), rose by over tenfold during the next fifteen months.
in June 1982, to usher in more moderate leadership in the junta. That July, the new Central Bank President, Domingo Cavallo
, rescinded the hated "1050." Thousands were saved from financial ruin by this change, but the economic damage would remain.
Business confidence was destroyed by the whole calamity and even though Argentina's productive Agricultural sector brought in over US$34 billion in trade surpluses over the next eight years, none of it sufficed to deal with chronic capital flight or the newly monstrous public debt (US$7 billion at the start of the dictatorship, it had grown to US$43 billion by the time of the restoration of democracy in 1983).
Martínez de Hoz was himself indicted in 1988 for his involvement in the human rights abuses
at Acindar and spent 77 days in jail. Quickly freed, he finally benefitted from a pardon
by President Carlos Menem
in 1990. Returning to world of high finance despite a 1992 conviction of operating a brokerage with a revoked licence, Martínez de Hoz became a member of the board of directors of two Arbitrage
houses: Rohm Group and the Banco General de Negocios ("General Business Bank").
The General Business Bank, now defunct, later helped clients illegally wire up to US$30 billion out of the country prior to its December, 2001, financial crisis.
In 2006, a judge declared the pardon unconstitutional
and revoked the suspension of the judicial process dictated before, thus leaving the way open to investigate Martínez de Hoz's alleged involvement in the kidnapping
and extortion
of Federico and Miguel Gutheim (a local textile mill owner and his son) in 1976, as well as the murder of Juan Carlos Casariego (one his own assistants at the Economy Ministry).
Martinez de Hoz was arrested on April 5, 2007, following a Supreme Court ruling deeming the 1990 presidential pardons unconstitutional, and was given a preliminary sentence of house arrest
(due to his advanced age) on May 4, 2010, pursuant to his indictment in the Gutheim case.
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
executive and policy maker. He served as Minister of the Economy under de facto President Jorge Rafael Videla
Jorge Rafael Videla
Jorge Rafael Videla Redondo is a former senior commander in the Argentine Army who was the de facto President of Argentina from 1976 to 1981. He came to power in a coup d'état that deposed Isabel Martínez de Perón...
between 1976 and 1981, and shaped economic policy during the self-styled National Reorganization Process
National Reorganization Process
The National Reorganization Process was the name used by its leaders for the military government that ruled Argentina from 1976 to 1983. In Argentina it is often known simply as la última junta militar or la última dictadura , because several of them existed throughout its history.The Argentine...
military dictatorship
Military dictatorship
A military dictatorship is a form of government where in the political power resides with the military. It is similar but not identical to a stratocracy, a state ruled directly by the military....
.
Early career
Martínez de Hoz, the scion of one Argentina's oldest cattle ranching families, was born in SaltaSalta
Salta is a city in northwestern Argentina and the capital city of the Salta Province. Along with its metropolitan area, it has a population of 464,678 inhabitants as of the , making it Argentina's eighth largest city.-Overview:...
, Argentina
Argentina
Argentina , officially the Argentine Republic , is the second largest country in South America by land area, after Brazil. It is constituted as a federation of 23 provinces and an autonomous city, Buenos Aires...
. Pursuing higher studies at the University of Cambridge
University of Cambridge
The University of Cambridge is a public research university located in Cambridge, United Kingdom. It is the second-oldest university in both the United Kingdom and the English-speaking world , and the seventh-oldest globally...
, he returned and in 1955, following the coup against the populist Juan Perón
Juan Perón
Juan Domingo Perón was an Argentine military officer, and politician. Perón was three times elected as President of Argentina though he only managed to serve one full term, after serving in several government positions, including the Secretary of Labor and the Vice Presidency...
, he was appointed his province's Minister of the Economy. Though democracy returned to Argentina three years later, the armed forces
Military of Argentina
The Armed Forces of the Argentine Republic, in Spanish Fuerzas Armadas de la República Argentina, are controlled by the Commander-in-Chief and a civilian Minister of Defense...
continued to exercise vetting power over most policy and in 1963, Martínez de Hoz became one of a series of conservative Argentine Economy Ministers during Jose Maria Guido
José María Guido
José María Guido was an interim President of Argentina from 30 March 1962 to 12 October 1963.Guido was elected to the Argentine Senate for Río Negro Province in 1958, representing the Intransigent Radical Civic Union...
's brief presidency (an interlude marked by squabbles among the military brass and recession).
Becoming an influential lobbyist for Acindar, one of Argentina's largest steel manufacturers, Martínez de Hoz became its CEO in 1968. Seven years later, after union laborers at Acindar's Villa Constitución
Villa Constitución
Villa Constitución is a city in the province of Santa Fe, Argentina, and the head town of the Constitución Department. It is located on the south-western banks of the Paraná River between the courses of the Arroyo Pavón and the Arroyo del Medio, about 214 km south from the provincial capital,...
plant elected a socialist shop steward, Martínez de Hoz retaliated by using his family's long-standing connections with the armed forces to have them brutally repressed. Supported by Metalworkers Union leader Lorenzo Miguel
Lorenzo Miguel
Lorenzo Miguel was a prominent Argentine labor leader closely associated with the steelworkers' union.-Early life and his rise in the UOM:...
, security forces abducted the new shop steward, Alberto Piccinini, and about 300 others (most of whom were murdered).
Work as minister of economy
Having become considerably developed, Argentina, by 1975, was nevertheless in the throes of some of the worst instability since 1930. Argentine public opinion turned to the militaryMilitary of Argentina
The Armed Forces of the Argentine Republic, in Spanish Fuerzas Armadas de la República Argentina, are controlled by the Commander-in-Chief and a civilian Minister of Defense...
, who deposed Isabel Perón's weak regime in a March 1976 coup. Inheriting a wave of violence and 700% inflation, the new regime called on Martínez de Hoz, appointing him Minister of the Economy. Anxious to restore business confidence, announced a plan to further open Argentina's markets, believing that the country's national industry was inefficient and uncompetitive internationally. He moved to lessen Argentina's trade barriers quickly, which he believed to be a cause of economic isolation. He enjoyed the personal friendship of David Rockefeller
David Rockefeller
David Rockefeller, Sr. is the current patriarch of the Rockefeller family. He is the youngest and only surviving child of John D. Rockefeller, Jr. and Abby Aldrich Rockefeller, and the only surviving grandchild of oil tycoon John D. Rockefeller, founder of Standard Oil. His five siblings were...
, who facilitated Chase Manhattan and International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
loans of nearly US$1 biliion following his appointment.
He decreed a general freeze on wages, and instituted a value-added tax while rescinding the inheritance tax
Inheritance tax
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a tax on the estate of a person who has died...
. As a result of the changes instituted by Martínez de Hoz, inflation fell sharply; but, many local retailers and home builders became incapable of coping with the fall in demand and declared bankruptcy.
A year later, the billion-dollar trade deficit had turned around and business investment had soared by about 25%. Real wages, however, had lost nearly 40% of their purchasing power, and while consumer spending remained weak, the shock might have been worse but for hitherto high savings rates. Inflation, in turn, revived, and Martínez de Hoz responded in June, 1977, with deregulation of the financial markets, removing checks on banks and transferring responsibility for any bad loans to the state, which took charge of their debt as needed.
The Central Bank, like many key economic posts in the Martínez de Hoz era, was led by one of a number of Chicago Boys
Chicago Boys
The Chicago Boys were a group of young Chilean economists most of whom trained at the University of Chicago under Milton Friedman and Arnold Harberger, or at its affiliate in the economics department at the Catholic University of Chile...
: Adolfo Diz
Adolfo Diz
Adolfo César Diz was an Argentine economist who served as President of the Central Bank of Argentina from 2 April 1976 until 27 March 1981.-Life and times:...
. Diz enacted much of the Economy Minister's financial deregulation
Big Bang (financial markets)
The phrase Big Bang, used in reference to the sudden deregulation of financial markets, was coined to describe measures, including abolition of fixed commission charges and of the distinction between stockjobbers and stockbrokers on the London Stock Exchange and change from open-outcry to...
policy, while moving to limit domestic credit. He enacted the Monetary Regulation Account Law of 1977, which raised reserve requirement
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
s to 45% of deposits, thereby doubling borrowers' interest rates while eliminating yields on demand deposit
Demand deposit
Demand deposits, bank money or scriptural money are funds held in demand deposit accounts in commercial banks. These account balances are usually considered money and form the greater part of the money supply of a country.-History:...
s.
Short-term financial speculation flourished, while chronic tax evasion
Tax evasion
Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability,...
and budget deficits remained high. Frequent wage freeze decrees continued to depress living standards generally and income inequality increased.
Sweet Money
Again in recession by 1978, the economy continued to be saddled with inflation around 175%. Image-conscious and so, fearful of possible riots, Martínez de Hoz relented and in December, he issued new, more generous wage guidelines. To address his fellow conservatives' fear that this might lead to even higher inflation, he introduced a novel take on the currency crawling pegCrawling peg
Crawling peg is an exchange rate regime usually seen as a part of fixed exchange rate regimes which allows depreciation or appreciation in an exchange rate gradually...
: fixed, progressively smaller devaluations of the official exchange rate
Historical exchange rates of Argentine currency
The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...
between the Argentine peso and the US dollar set by a monthly timetable, popularly known as the Tablita.
The Tablita invariably set a slower depreciation of the peso value than what local inflation warranted and although inflation did ease somewhat, imported goods and foreign credit soon became much cheaper than those locally available. Imports almost tripled in volume and by 1980, the peso became one of the most overvalued currencies in the world; its high purchasing power abroad soon had many referring to it as plata dulce ("sweet money"). Record numbers of Argentines now vacationed abroad, often stocking up on appliances; between the suddenly negative trade deficit and tourists' foreign spending, however, this chalked up a then-record US$4 billion annual loss for the national balance sheet in both 1980 and 1981.
Having already suffered from weakened demand, many industries (particularly smaller factories) could not compete with the flood of imports and a second wave of industry bankruptcies began. Ostensibly to avoid a sharp rise in unemployment, Martínez de Hoz took an even more controversial step when he decided to begin absorbing private sector debts (mostly those of the well-connected, including US$700 miliion of Acindar's) into the national debt. One of his chief business interests, the insolvent Compañía Italo Argentina de Electricidad, was nationalized at his orders at a reported cost of US$394 million.
The economy was still in relatively high gear and, with rising fiscal revenues, the nation's finances appeared healthy during 1979 and 1980. Secretly, however (as much of this data was censored at time), local speculators were taking advantage of the overvalued peso by taking up over US$30 billion in loans overseas. This money soon found itself in risky gambles at home and abroad and when one bank's Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
collapsed in March, 1980, Martínez de Hoz responded to the possible panic by luring investors with one-year treasury bills
Treasury security
A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...
, paying 60% in US dollars. Facing these pressures, the Argentine peso increasingly became the object of short-selling by insiders
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
, including Martínez de Hoz himself.
Circular 1050 and the shattered Tablita
The end of his tenure soon near and increasingly unpopular, in April 1980, Martínez de Hoz had the Central Bank promulgate new regulations governing adjustable loans. The Central Bank Circular 1050 tied monthly loan interest payments (almost all lending in Argentina is on an adjustable basis) to the value of the US dollar vis-a-vis the peso. Borrowers were confident that the gradual peso devaluations would continue on schedule and new homeowners rushed to secure (or, refinance) mortgages at these favorable terms. Brokerage houses proliferated as put options against the peso increased sharply and in February, 1981, Martínez de Hoz announced the unthinkable: the time had come for a sharp devaluationDevaluation
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged....
. The Tablita was shattered and he retired the following month.
What followed was one of the worst financial crises in the history of modern Argentina. Speculators quickly took advantage of the 1977 deregulation to write off their debts, legitimate borrowers (including many large employers) were faced with suddenly unaffordable US dollar payments and homeowners' monthly payments (tied by the Circular 1050 to the value of the Dollar
Historical exchange rates of Argentine currency
The following table contains the monthly historical exchange rate of the different currencies of Argentina, expressed in Argentine currency units per United States dollar...
), rose by over tenfold during the next fifteen months.
Legacy
It took defeat during the disastrous Falklands WarFalklands War
The Falklands War , also called the Falklands Conflict or Falklands Crisis, was fought in 1982 between Argentina and the United Kingdom over the disputed Falkland Islands and South Georgia and the South Sandwich Islands...
in June 1982, to usher in more moderate leadership in the junta. That July, the new Central Bank President, Domingo Cavallo
Domingo Cavallo
Domingo Felipe "Mingo" Cavallo is an Argentine economist and politician. He has a long history of public service and is known for implementing the Convertibilidad plan, which fixed the dollar-peso exchange rate at 1:1 between 1991 and 2001, which brought the Argentine inflation rate down from over...
, rescinded the hated "1050." Thousands were saved from financial ruin by this change, but the economic damage would remain.
Business confidence was destroyed by the whole calamity and even though Argentina's productive Agricultural sector brought in over US$34 billion in trade surpluses over the next eight years, none of it sufficed to deal with chronic capital flight or the newly monstrous public debt (US$7 billion at the start of the dictatorship, it had grown to US$43 billion by the time of the restoration of democracy in 1983).
Martínez de Hoz was himself indicted in 1988 for his involvement in the human rights abuses
Dirty War
The Dirty War was a period of state-sponsored violence in Argentina from 1976 until 1983. Victims of the violence included several thousand left-wing activists, including trade unionists, students, journalists, Marxists, Peronist guerrillas and alleged sympathizers, either proved or suspected...
at Acindar and spent 77 days in jail. Quickly freed, he finally benefitted from a pardon
Pardon
Clemency means the forgiveness of a crime or the cancellation of the penalty associated with it. It is a general concept that encompasses several related procedures: pardoning, commutation, remission and reprieves...
by President Carlos Menem
Carlos Menem
Carlos Saúl Menem is an Argentine politician who was President of Argentina from 1989 to 1999. He is currently an Argentine National Senator for La Rioja Province.-Early life:...
in 1990. Returning to world of high finance despite a 1992 conviction of operating a brokerage with a revoked licence, Martínez de Hoz became a member of the board of directors of two Arbitrage
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
houses: Rohm Group and the Banco General de Negocios ("General Business Bank").
The General Business Bank, now defunct, later helped clients illegally wire up to US$30 billion out of the country prior to its December, 2001, financial crisis.
In 2006, a judge declared the pardon unconstitutional
Constitution of Argentina
The constitution of Argentina is one of the primary sources of existing law in Argentina. Its first version was written in 1853 by a Constitutional Assembly gathered in Santa Fe, and the doctrinal basis was taken in part from the United States Constitution...
and revoked the suspension of the judicial process dictated before, thus leaving the way open to investigate Martínez de Hoz's alleged involvement in the kidnapping
Kidnapping
In criminal law, kidnapping is the taking away or transportation of a person against that person's will, usually to hold the person in false imprisonment, a confinement without legal authority...
and extortion
Extortion
Extortion is a criminal offence which occurs when a person unlawfully obtains either money, property or services from a person, entity, or institution, through coercion. Refraining from doing harm is sometimes euphemistically called protection. Extortion is commonly practiced by organized crime...
of Federico and Miguel Gutheim (a local textile mill owner and his son) in 1976, as well as the murder of Juan Carlos Casariego (one his own assistants at the Economy Ministry).
Martinez de Hoz was arrested on April 5, 2007, following a Supreme Court ruling deeming the 1990 presidential pardons unconstitutional, and was given a preliminary sentence of house arrest
House arrest
In justice and law, house arrest is a measure by which a person is confined by the authorities to his or her residence. Travel is usually restricted, if allowed at all...
(due to his advanced age) on May 4, 2010, pursuant to his indictment in the Gutheim case.