Economic policy Hyperinflation forced Menem to abandon party
orthodoxy in favour of a
fiscally conservative,
market-oriented economic policy. At the time, most economists thought that the ideal solution was the
Washington Consensus; i.e. reduce expenditures below the amount of money earned by the state, and open international commerce to
free trade. Alfonsín had proposed similar reforms in the past, alongside some limited
privatization of
state-owned enterprises; those projects were resisted by the Partido Justicialistal opposition party, whose internal factions were actually benefiting from the prevailing
protectionist policies. The magnitude of the crisis, however, convinced most politicians to change their minds. Menem, fearing that the crisis might force him to resign as well, embraced the Washington Consensus and rejected the traditional policies of
Peronism. The president invited several
conservative figures into his cabinet, such as
Álvaro Alsogaray, as well as a businessman from
Bunge and Born; Miguel Roig, the company's then-vice president, became Menem's first appointed
minister of economy on 30 May, although he would be replaced just five days after taking office due to his sudden death by
myocardial infarction; in his place was appointed
Néstor Mario Rapanelli, who had succeeded Roig as vice president at Bunge and Born. Congress passed the
economic emergency and
state reform laws. The first allowed president Menem to reduce or remove
subsidies at his discretion, and the latter to privatize state enterprises – the first being telephones and airlines. These privatizations were beneficial to foreign creditors, who replaced their bonds with company shares. Despite increased
tax revenue and the money gained from privatizations, the economy was still unstable. The Bunge and Born businessmen left the government in late 1989, amid a second round of
hyperinflation. His fourth minister of economy,
Domingo Cavallo, was appointed in 1991 and deepened the
liberalization of the economy. The
Convertibility plan was sanctioned by Congress, setting a one-to-one
fixed exchange rate between the
United States dollar and the new
peso, which replaced the
austral. The law also limited public expenditures, but this was frequently ignored. Under Cavallo, there was increased
free trade, alongside a general reduction of
tariffs on imports and state regulations to tackle inflation, and high taxes on sales and earnings to reduce the deficit caused by it. The privatizations of
electricity,
water, and
gas services were more successful than previous ones.
YPF, the national oil refinery, was partially privatized as well, with the state keeping a good portion of its shares. The project to privatize the
pension funds was resisted in Congress and was approved as a mixed system that allowed both public and private options for workers. The national state also signed a fiscal pact with the provinces, so that they reduced their local deficits as well;
Buenos Aires Province was aided with a fund that gave the governor a million pesos daily. Although the Convertibility plan had positive consequences in the short term, it caused problems that surfaced later. Large numbers of employees of privatized state enterprises were fired, and unemployment grew to over 10%. Big compensation payments prevented an immediate public reaction. Free trade and the expensive costs in dollars forced private companies to reduce the number of workers as well, or risk bankruptcy. Unions were unable to resist the changes. People with low incomes, such as retirees and state workers, suffered under tax increases while their wages remained frozen. Some provinces, such as
Santiago del Estero,
Jujuy, and
San Juan, endured violent riots as well. To compensate for these issues, the government started a number of social welfare programs and restored protectionist policies over some sectors of the economy. It was difficult for Argentine companies to export, and easy imports damaged most national producers. The national budget soon slid into a deficit. Cavallo soon began the second wave of privatizations, this time targeting the national postal service, the
Correo Argentino, and the country's nuclear power plants. He also limited the amount of money released to the provinces. He still had the full support of Menem, despite growing opposition within the Justicialist Party. The Mexican
Tequila Crisis of 1994 impacted the national economy, causing the deficit, recession, and a growth in unemployment. The government further reduced public expenditures, the wages of state workers, and raised taxes. The deficit and recession were reduced, but unemployment stayed high. External debt increased. The crisis also proved that the economic system was vulnerable to capital flight. The growing discontent over unemployment and the scandals caused by the privatization of the postal service led to Cavallo's removal as a minister, and his replacement by
Roque Fernández. Fernández maintained Cavallo's fiscal
austerity; he increased the price of fuels, sold the remaining state shares of YPF to
Repsol, fired state employees, and raised the
value-added tax to 21%. New labor law was met with resistance, both by Peronists, opposition parties, and unions, and could not be approved by Congress. The
1997 Asian financial crisis and the
1998 Russian financial crisis also affected the country with consequences that lasted longer than the Tequila Crisis and started a
depression. Other institutions that restrained or limited executive power were controlled as well. When Congress resisted some of his proposals, he used the
Necessity and Urgency Decree as an alternative to sending bills to it. He even considered it feasible to dissolve Congress and rule by decree, but this step was never implemented. In addition, he developed a
bon vivant lifestyle, taking advantage of his authority. For instance, he made a journey from Buenos Aires to
Pinamar driving a
Ferrari 348 TB (often misreported as a
Ferrari Testarossa) in less than two hours, violating speed limits. He divorced his wife
Zulema Yoma and expanded the
Quinta de Olivos presidential residence with a golf course, a small zoo, servants, a barber, and even a buffoon. (1997) The
swiftgate scandal broke out in December 1990, as American investors were damaged by a case of corruption, and asked for assistance from the United States' Ambassador
Terence Todman. Most of the ministers resigned as a result of it. Both teams complemented each other. Both Menem and Cavallo tried to be recognized as the designer of the convertibility plan.
Antonio Cafiero, a rival of Menem in the Partido Justicialista, was unable to amend the constitution of the province of Buenos Aires to run for re-election. Duhalde stepped down from the vice presidency and became the new governor in the
1991 elections, turning the province into a powerful bastion. Menem also selected famous people with no political background to run for office in those elections, including the singer
Palito Ortega and racing driver
Carlos Reutemann. The elections were a big success for the Partido Justicialistal. After these elections, all of the Partido Justicialistal, was aligned with Menem's leadership, with the exception of a small number of legislators known as the "Group of Eight". The opposition from the UCR was minimal, as the party was still discredited by the 1989 crisis. With such political influence, Menem began his proposal to amend the constitution to allow a re-election. The party did not have the required supermajority in the Congress to call for it. The Partido Justicialistal was divided, as other politicians intended to replace Menem in 1995 or negotiate their support. The UCR was divided as well, as Alfonsín opposed the proposal, but governors Angeloz and Massaccesi were open for negotiations. The victory in the
1993 elections strengthened his proposal, which was approved by the Senate. Menem called for a non-binding referendum on the proposal, to increase pressure on the Radical deputies. He also sent a bill to Congress to modify the majority requirements. Alfonsín met with Menem and agreed to support the proposal in exchange for amendments that would place limits on presidential power. This negotiation is known as the
Pact of Olivos. The capital city of Buenos Aires would be allowed to elect its own
chief of government. Presidential elections would use a system of
ballotage, and the president could only be re-elected once. The
electoral college was abolished, replaced by
direct elections. The provinces would be allowed to elect a third senator; two for the majority party and one for the first minority. The
Council of Magistracy of the Nation would have the power to propose new judges, and the Necessity and Urgency Decrees would have a reduced scope. Despite the internal opposition of
Fernando de la Rúa, Alfonsín got his party to approve the pact. He reasoned that Menem would be supported by the eventual referendum, that many legislators would turn to his side, and he would eventually be able to amend the constitution reinforcing presidential power rather than limiting it. Still, as both sides feared a betrayal, all the contents of the pact were included as a single proposal, not allowing the Constituent Assembly to discuss each one separately. The
Broad Front, a new political party composed of former Peronists, led by
Carlos Álvarez, grew in the elections for the Constituent Assembly. Both the Partido Justicialista and the UCR respected the pact, which was completely approved. Duhalde made a similar amendment to the constitution of Buenos Aires province, in order to be re-elected in 1995. Menem won the elections with more than 50% of the vote, followed by
José Octavio Bordón and Carlos Álvarez. The UCR finished third in the elections for the first time. Growing unemployment increased popular resistance against Menem after his re-election. There were several riots and demonstrations in the provinces, unions opposed the economic policies, and the opposing parties organized the first
cacerolazos.
Estanislao Esteban Karlic replaced
Antonio Quarracino as the head of the
Argentine Episcopal Conference, which led to a growing opposition to Menem from the Church. The teachers' unions established a "white tent" at the Congressional plaza as a form of protest. The first
piqueteros operated in
Cutral Có, and this protest method was soon imitated in the rest of the country. Menem's authority in the Partido Justicialista was also held in doubt, as he was unable to run for another re-election and the party sought a candidate for the 1999 elections. This led to a fierce rivalry with Duhalde, the most likely candidate. Menem attempted to undermine his chances, and proposed a new amendment to the constitution allowing him to run for an unlimited number of re-elections. He also started a judicial case, claiming that his inability to run for a third term was a
proscription. Several scandals erupted, such as the
scandal over Argentine arms sales to Ecuador and Croatia, the
Río Tercero explosion that may have destroyed evidence, the murder of the journalist
José Luis Cabezas, and the suicide of
Alfredo Yabrán, who may have ordered it. The Partido Justicialista lost the 1997 midterm elections against the UCR and the FREPASO united in a political coalition, the
Alliance for Work, Justice and Education (Alianza). The Supreme Court confirmed that Menem was unable to run for a third re-election. Duhalde became the candidate for the presidential elections, and lost to the candidate for the Alianza ticket, Fernando de la Rúa.
Foreign policy in June 1993 During Menem's presidency, Argentina aligned with the
United States, and had special relations with the country. Menem had good relations with U.S. president
George H. W. Bush, and his successor
Bill Clinton from 1993 on. The country left the
Non-Aligned Movement, and the
Cóndor missile program was discontinued. Argentina supported all the international positions of the U.S., and sent forces to the
Gulf War, and the peace keeping efforts during the
War in Bosnia and after the
Kosovo War. The country was accepted as a
major non-NATO ally, but not as a
full member. Menem's government re-established relations with the
United Kingdom, suspended since the
Falklands War, after
Margaret Thatcher left office in 1990. The discussions on the
Falkland Islands sovereignty dispute were temporarily given a lower priority, and the focus shifted to discussions of fishing rights. In 1998, Menem visited Russia, and met with Russian president
Boris Yeltsin, where Menem expressed his anticommunist sentiments and congratulated Yeltsin for "defeating communism" in Russia.
Chile in April 1993 Menem also settled all remaining
border issues with
Chile. The
Lago del Desierto dispute had an international arbitration, favourable to Argentina. The only exception was the dispute over the
Southern Patagonian Ice Field, which is still open. Chilean president
Patricio Aylwin was at first sceptical towards his Argentine counterpart whom he according to
Emol considered "scruffy" (). Similarly, José Miguel Insulza called Menem "one of the best friends of Chile". The military leaders of the
National Reorganization Process, convicted in the 1985
Trial of the Juntas, received
presidential pardons, despite popular opposition to them. This was an old request of the
Carapintadas in previous years. However, Menem did not apply their proposed changes to the military. The colonel,
Mohamed Alí Seineldín, who was also pardoned, started a new mutiny, killing two military men. Unlike the mutinies that took place during the presidency of Alfonsín, the military fully obeyed Menem's orders for a forceful repression. Seineldín was utterly defeated, and sentenced to life imprisonment. This was the last military mutiny in Argentina. The president effected drastic cuts to the military budget, and privatized military factories. Menem appointed Lt. Gen.
Martín Balza, who had performed well during the repression of Seineldín's mutiny, as the Army's General Chief of Staff (head of the military hierarchy). The death of a
conscript soldier in 1994, victim of abuses by his superiors, led to the abolition of conscription in the country. The following year, Balza voiced the first institutional self-criticism of the armed forces during the Dirty War, saying that obedience did not justify the actions committed in those years.
Terrorist attacks The Israeli embassy suffered a
terrorist car bomb attack on 17 March 1992. It was perceived as a consequence of Argentina's involvement in the
Gulf War. Although
Hezbollah claimed responsibility for it, the Supreme Court investigated several other hypotheses. The Court wrote a report in 1996 suggesting that it could have been the explosion of an arms cache stored in the basement. Another hypothesis was that the attack could have been performed by Jewish extremists, in order to cast blame on Muslims and thwart the peace negotiations. The Court finally held Hezbollah responsible for the attack in May 1999. The
Argentine Israelite Mutual Association suffered a
terrorist attack with another
car bomb on 18 July 1994, killing eighty-five people. It was the most destructive terrorist attack in the history of Latin America. The attack was universally condemned and 155,000 people demonstrated at the Congressional plaza, but Menem did not attend. The legal case stayed unresolved during the remainder of Menem's presidency. Menem had suggested, in the first press conference, that former
Carapintada leaders may be responsible for the attack, but this idea was rejected by the minister of defense several hours later. The
CIA office in Buenos Aires initially considered it a joint Iranian-Syrian attack, but some days later considered it just an Iranian attack. Menem and
Mossad also preferred this line of investigation. As a result of the attack, the Jewish community in Argentina had increased influence over Argentine politics. and on 18 January 2015, Nisman was found dead of a gunshot to his head at his home in Buenos Aires. On 15 March 1995, Menem's son
Carlos Menem Jr. died while piloting a
Bell 206B-3 helicopter, along with his friend and fellow racing driver
Silvio Oltra who was riding as a passenger. The helicopter reportedly struck
overhead power lines near
Ramallo in the north of the province of
Buenos Aires and crashed, killing both men. Later on, remains of Menem Jr. were exhumed amid murder claims by his mother Zulema Yoma. Menem had accused the Lebanese
Shia Islamist group,
Hezbollah, of killing his son. ==Post-presidency==