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Argentina’s Interim President Takes Office, Declares Debt Default

In his first act as caretaker president, Saa declared a moratorium on Argentina’s $132 billion international debt, the largest default ever made by a sovereign country.

Last week, massive riots against the government’s economic policies effectively overthrew the De la Rua administration. At least 27 people died during the uprising.

After De la Rua resigned, Ramon Puerta, the Senate leader, filled in as president for 48 hours until a special legislative assembly could select an official interim president to serve for the next three and a half months.

Advocates say the debt default could save the country up to $10 billion, which Saa promised to use for creating new jobs and improving social programs.

“I believe in an Argentina without unemployment, without misery,” Saa declared, adding references to the father of Argentina’s labor movement, General Juan Domingo Peron, who formed the Justicialist, or Peronist, party in the mid-1940s.

A new economic plan

Saa said he hoped to lift his predecessor’s unpopular economic austerity measures within the next four to five weeks.

De la Rua and his economic minister Domingo Cavallo, who also resigned last week, had implemented measures like limiting bank withdrawals to $1,500 per person, freezing retiree pension funds, and ceasing interest payments on government bonds, in an attempt to replenish government coffers and meet debt payments.

As Congress cheered the interim president and chanted “Argentina! Argentina!,” Saa said he would print more of the country’s third currency as a way to improve consumer spending, create jobs, and pay workers.

The currency, commonly known as “patacones,” was introduced by the De la Rua administration last November after municipal governments ran out of money to pay their employees.

Patacones, based on low-yield government bonds, will be circulated alongside the U.S. dollar and Argentine peso, the preferred currencies.

The government has not officially established the exact value of the third currency in relation to other currencies, nor has it announced the official name of the currency.

Another possible remedy for the country’s flagging economy, already mired in a four-year recession, would be devaluing the peso, and abandoning the popular convertibility system which pegs the peso equally to the dollar.

But, Saa announced he had no intention of devaluing the peso.

“A devaluation would mean decreasing salaries and consumer buying power and would only worsen our problems,” Saa said in his congressional address.

Unlike Russia’s debt default in 1998, analysts expect Argentina’s default to be relatively contained.

Because the South American country had warned the international community of its deteriorating economy for the past year, investors had ample time to reduce their risk and exposure.

Crippled with low cash reserves and high unemployment, Argentina will likely be ostracized by international financial institutions and foreign investors due to its default.

The new president elected in March will finish out the last two years of De la Rua’s presidential term, until regular elections are held in 2003.

Analysts expect the Peronists to win the election, largely because of the party’s roots in unions and its opposition to the free market ideology of the former administration.

Top candidates from the Peronist party are Carlos Ruckauf, a pro-labor and left-leaning governor from Buenos Aires who also served as vice-president during the administration of Carlos Menem, and Jose Manuel de la Sota, the governor of Cordoba and advocate of supply-side economics.

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