Argentine economic architect arrested

Domingo Cavallo won praise for his policies

The former Argentine economy minister, Domingo Cavallo, has been arrested in connection with alleged illegal arms sales to Croatia and Ecuador in the 1990s.

Mr Cavallo was detained after appearing before a court in Buenos Aires.

Carlos Menem spent months under house arrest

Local media reported that Mr Cavallo had been questioned by Judge Julio Speroni before being transferred to a Buenos Aires military jail.

The judge now has 10 days to decide whether or not to bring criminal charges against the former minister.

The BBC's Peter Greste, in Buenos Aires, says it is being reported that Judge Speroni ordered the arrest after Mr Cavallo evaded a series of questions.

Mr Cavallo's lawyer, Rafael O'Gorman, called the arrest "ridiculous" but declined to comment further.

Mr Cavallo was economy minister under former President Carlos Menem when the arms smuggling case surfaced in the 1990s.

Arms diverted

Last year, Mr Menem spent almost six months under house arrest in connection with the same case, but was eventually released.

Our correspondent says that several other officials are also under suspicion.

The illegal arms sales came to light in 1995 when it was revealed that guns and ammunition sent to Venezuela by the Argentine state weapons company had been diverted to Ecuador during its month-long border conflict with Peru.

Austerity measures last year triggered rioting across Argentina

Argentina had been one of the guarantors of the peace accord between the two countries.

It then emerged that in 1991 and 1993, Argentina had sent 6,500 tonnes of weapons and munitions to Panama - a country that had not had an army since the US invasion of 1989.

Those arms had found their way to Croatia, which was then subject to a UN arms embargo.

Mr Menem's government maintained that it had been the victim of arms dealers who had diverted the weapons.

Mr Cavallo was credited with saving Argentina from hyper-inflation when he pegged the peso to the US dollar in 1991.

His free-market policies made Argentina a showcase for International Monetary Fund (IMF) policies.

But he also presided over a ballooning budget deficit which turned Argentina into the biggest borrower among the emerging markets and brought on the current crisis.

Mr Cavallo left Mr Menem's government in 1996, three years before the administration ended and Fernando de la Rua was elected president.

As the economy crumbled around him, Mr de la Rua appointed Mr Cavallo as economy minister in the hope that he could perform another economic miracle.

Unpopular measures

However, his comeback ended in disaster.

He introduced a series of unpopular austerity measures that sparked widespread rioting and brought down Mr de la Rua and his successor Adolfo Rodriguez Saa in the space of two weeks.

Mr Cavallo resigned in December.

When he left office, Argentina had debts of $130bn and nearly 20% of the workforce was unemployed.

The measures Mr Cavallo forced through are now the subject of a separate legal investigation.

One political analyst said that, while the latest arrest may have legal grounds, the fact that the courts waited until Mr Cavallo had fallen from favour before ordering the detention implies political motives.

The current Argentine Government, under President Eduardo Duhalde, has floated the peso and introduced economic measures which it hopes will attract aid from the IMF.