Argentina Stops Debt Payments
By Mary Milliken
BUENOS AIRES, Argentina (Reuters) - Argentina on Sunday swore in an interim president who immediately called new elections for March and canceled payment on a crippling public debt to alleviate the poverty behind bloody riots that toppled the last government.
Adolfo Rodriguez Saa, who will lead the country for 99 days, declared a moratorium on the $132 billion debt which could herald the largest default in history. Rejecting pressure to devalue the peso, which is pegged to the dollar, he said a new currency will circulate alongside the peso to ease a cash crunch.
``The Argentine state will suspend the payment of foreign debt. This is not a rejection of foreign debt ... but rather the first move by a rational government to deal with foreign debt correctly,'' Rodriguez Saa said in an inaugural speech met by soccer-style chants of ``Argentina! Argentina!'' from supporters.
As angry looters and peaceful protesters alike brought down Fernando De la Rua's government last week, the United States, the International Monetary Fund and foreign banks signaled that the social and political cost of keeping up debt payments had become unacceptable for the country's 36 million people.
U.S. Treasury Secretary Paul O'Neill said on Friday it was ''quite clear'' Argentina could not service its outstanding debt and Argentina's European allies France and Italy said it could no longer stand IMF-prescribed austerity measures.
Rodriguez Saa belongs to the Peronist Party which was thrust into power last week following De la Rua's forced exit, two years ahead of schedule.
The scion of a provincial political dynasty, for 18 years Rodriguez Saa has run the small Western state of San Luis and earned a reputation for capable and investor-friendly government.
His task will be to keep the country on an even keel until elections on March 3, when a president and vice president will be chosen to complete De la Rua's mandate at the end of 2003. The Peronists, who ruled from 1989 to 1999 and dominate Congress, are widely expected to win.
Rodriguez Saa, 54, is Argentina's third head of state in four days. The unpopular De la Rua, elected two years ago, was whisked from the roof of his palace by helicopter on Thursday as protesters battled with police outside.
His resignation, and that of his denigrated Economy Minister Domingo Cavallo, followed long, hot summer nights of rioting in Buenos Aires and provincial capitals. The toll was 27 people dead, hundreds of shops and supermarkets ransacked and more than 2,000 arrests.
De la Rua was replaced for two days by Ramon Puerta, the Peronist head of the Senate, according to the constitution.
READY TO NEGOTIATE DEBT
The new president, smiling and suntanned, signaled he was ready to negotiate with foreign creditors. International bond holders, multilateral lenders and local financial institutions hold the most of the public debt.
``International markets will react well because we will negotiate with them,'' Rodriguez Saa told reporters as he left Congress in downtown Buenos Aires.
Jose Manuel de la Sota, a heavyweight Peronist presidential contender and the governor of the industrial hub province Cordoba, said ``Argentina must be honest'' about its ability to pay its debts. ``We can't pay today but we will pay,'' he said.
Investors await details on the moratorium and currency scheme from new Treasury Secretary Rodolfo Frigeri, viewed by analysts as a party loyalist who is unlikely to clash with the powerful Peronist barons.
But the investors are already coming to grips with the idea that this plan is about spurring growth and holding the economy together at least until the March 3 polls.
``It was obvious this would be the only reaction from anyone who would be appointed president. Is it sustainable over time? No,'' said Mauro Leos, senior credit analyst at ratings agency Standard & Poor's in New York.
The U.S. Treasury and the IMF declined comment on Argentina's about-face, but economists said there may be criticism of a new currency, a plan that harks back to the fiscal disorder and hyperinflation of the 1970s and 1980s.
On Sunday U.S. President George Bush sent Rodriguez Saa a letter in which he wished the new president every success and expressed hopes that relations between the two countries would continue to be ``excellent''.
Rodriguez Saa rejected devaluing the peso or ditching it altogether and adopting the dollar -- two options mulled by politicians and economists for months to pull Latin America's third largest economy out of recession.
A poll published Sunday in the La Nacion newspaper said 79 percent of Argentines reject devaluation.
Ordinary people have switched their savings into dollars for fear of devaluation. Argentines earn pesos but are indebted in dollars, meaning devaluation could bankrupt them.
Lines of panicky savers at banks recall the chaos of a decade ago when savings were confiscated and inflation hit 5,000 percent. As minister to the Peronists in 1991, Cavallo introduced convertibility, the peso/dollar peg, which brought stability and made him Wall Street's favorite.
But he could not repeat the magic when recalled by De la Rua in March. His pledges to end deficit spending did not come good and foreign creditors shut their doors to Argentina, whose country-risk rating for investors hit stratospheric levels.
``With the current economic and social crisis in the country, these options of dollarization and devaluation, which portray convertibility as the evil of Argentine society, are false,'' Rodriguez Saa said.
He promised to divert monies set for debt payments to labor and social projects and create 1 million new jobs in a nation where unemployment affects nearly 20 percent of the work force and where a third of the population live in poverty.
PLUMP PUBLIC SALARIES CUT
With an ear to protests at fat government wages, Rodriguez Saa announced the sale of official cars and the presidential jet and banned public salaries above his $3,000 monthly wage.
Politicians said the new currency, not yet named, would be used to pay state wages, pensions and Christmas bonuses which could put back some life into a dormant economy that some believed would shrink by as much as 10 percent in 2002.
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