ARGENTINA - New prez suspends debt payments, orders new currency

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http://www.boston.com/dailynews/358/world/New_Argentine_president_suspen:.shtml

New Argentine president suspends debt payments, orders new currency to ease economic crisis

By Kevin Gray, Associated Press, 12/24/2001 03:46

BUENOS AIRES, Argentina (AP) Swept into office after Argentina's economic crisis boiled over into riots and looting, President Adolfo Rodriguez Saa suspended payment of its suffocating debt load and left the country veering toward the biggest default in history.

The moratorium placed Sunday on the payments of the $132 billion debt was Saa's first major announcement after he replaced Fernando de la Rua, driven from power last week after a popular revolt against his economic policies.

The move to temporarily halt payments expected by many Wall Street analysts for weeks left creditors bracing for huge losses and raised the risk Argentina will plunge further into recession.

But it was welcomed by some Argentines who say they have increasingly paid the price for a debt load that has forced banking restrictions, raised taxes and brought cuts in state worker salaries and pensions.

''Let's be frank: we're bankrupt!'' said Nelson Rodriguez, a private car service owner. ''We know it, Wall Street knows it. We might as well let the world know it.''

Rodriguez Saa insisted Argentina would suspend payments only temporarily. He promised to ask international creditors for sympathy to Argentina's plight, sounding confident despite the likelihood that substantial foreign lending will be denied for years to come.

''I think this will be well received because we will negotiate it well,'' said the 54-old-year-old lawyer and former governor, taking office three days after deadly rioting and looting forced de la Rua to resign. ''I'll ask for help.''

There was no immediate reaction from the International Monetary Fund or the U.S. Treasury, but several European countries including Italy and Spain have said they will extend credit lines to cash-starved Argentina.

Many on Wall Street already considered Argentina to be effectively in default after de la Rua unveiled a plan to swap government bonds with high interest rates for new bonds yielding less.

The change of government brought a blunt admission of Argentina's shaky fiscal state, but also left difficult challenges for the interim president.

Rodriguez Saa will remain in office until a new election scheduled for March 3. He was confirmed as caretaker president and took office Sunday after an all-night debate in Congress.

New Finance Secretary Rodolfo Friger signaled the gravity of the situation in South America's second-largest economy hours after taking his post, saying the country's reserves had fallen fast in recent weeks and are ''at a level lower than we thought.''

Falling reserves have raised the specter of a devaluation, but Rodriguez Saa rejected that possibility along with calls to replace Argentina's peso with the U.S. dollar. ''The options of dollarization and devaluation are false,'' he said.

A devaluation would push many Argentines into bankruptcy and jeopardize an already wobbly banking system, and adopting the dollar would do little to deflate what many economists say is an overvalued peso that has left Argentine products uncompetitive abroad.

Instead, Rodriguez Saa proposed to print a new currency essentially government IOUs to pay state salaries, pensions and Christmas bonuses.

Economists warn that by increasing the money supply, Argentina could bring back the inflationary chaos of the late 1980s, the last time food riots and supermarket looting plagued this country of 36 million.

Seeking popular support, Rodriguez Saa pledged to try to raise salaries for workers while cutting politicians' pay. He eliminated seven of 11 cabinet posts and promised to sell airplanes at his disposal.

With unemployment at 18.3 percent, he also announced plans to create a million jobs, including 100,000 in the coming days.

''This government is going to undertake precise actions to show Argentines they can start to believe in the country again,'' he said.

However, some economists warned that Rodriguez Saa and other leaders from his Peronist party the country's largest have already shown reluctance to take the tough decisions needed to rescue the economy.

-- Anonymous, December 24, 2001

Answers

http://www.boston.com/dailynews/358/world/New_Argentine_president_to_a sk:.shtml

New Argentine president to ask United States and Spain for financial assistance

By Kevin Gray, Associated Press, 12/24/2001 12:28

BUENOS AIRES, Argentina (AP) President Adolfo Rodriguez Saa will appeal to the United States and Spain for financial aid to help Argentina overcome its economic crisis, the newly installed leader said Monday, a day after he suspended payment of the country's suffocating debt load.

In desperate need of fresh funds to keep his cash-strapped country afloat, Rodriguez Saa said he would make a personal plea to the American president and Spanish Prime Minister for aid to stem the crisis.

''I will ask President Bush and Prime Minister Jose Maria Aznar for economic help,'' he told the magazine Gente. He did not say how much money he would request.

The moratorium placed Sunday on payments of some of the $132 billion debt was Rodriguez Saa's first major announcement after he replaced Fernando De la Rua, driven from power last week after a popular revolt against his economic policies.

The move to temporarily halt payments expected by many Wall Street analysts for weeks left creditors bracing for huge losses and raised the risk Argentina will plunge further into recession. It also left the country veering toward the biggest default in history.

But it was welcomed by some Argentines who say they have increasingly paid the price for a debt load that has forced banking restrictions, raised taxes and brought cuts in state worker salaries and pensions.

''Let's be frank: we're bankrupt!'' said Nelson Rodriguez, a private car service owner. ''We know it, Wall Street knows it. We might as well let the world know it.''

Rodriguez Saa insisted Argentina would suspend payments only temporarily. He promised to ask international creditors for sympathy to Argentina's plight, sounding confident despite the risk that substantial foreign lending could be more difficult for years to come.

''I think this will be well received because we will negotiate it well,'' said the 54-old-year-old lawyer and former governor, taking office three days after deadly rioting and looting forced de la Rua to resign. ''I'll ask for help.''

There was no immediate reaction from the International Monetary Fund or the U.S. Treasury, but several European countries including Italy and Spain have said they will extend credit lines to cash-starved Argentina.

Many on Wall Street already considered Argentina to be effectively in default after de la Rua unveiled a plan to swap government bonds with high interest rates for new bonds yielding less.

The change of government brought a blunt admission of Argentina's shaky fiscal state, but also left difficult challenges for the interim president.

Rodriguez Saa will remain in office until a new election scheduled for March 3. He was confirmed as caretaker president and took office Sunday after an all-night debate in Congress.

New Finance Secretary Rodolfo Frigeri signaled the gravity of the situation in South America's second-largest economy hours after taking his post, saying the country's reserves had fallen fast in recent weeks and are ''at a level lower than we thought.''

Falling reserves have raised the specter of a devaluation, but Rodriguez Saa rejected that possibility along with calls to replace Argentina's peso with the U.S. dollar. ''The options of dollarization and devaluation are false,'' he said.

A devaluation would push many Argentines into bankruptcy and jeopardize an already wobbly banking system, and adopting the dollar would do little to deflate what many economists say is an overvalued peso that has left Argentine products uncompetitive abroad.

Instead, Rodriguez Saa proposed to print a new currency essentially government IOUs to pay state salaries, pensions and Christmas bonuses.

Economists warn that by increasing the money supply, Argentina could bring back the inflationary chaos of the late 1980s, the last time food riots and supermarket looting plagued this country of 36 million.

Seeking popular support, Rodriguez Saa pledged to try to raise salaries for workers while cutting politicians' pay. He eliminated seven of 11 cabinet posts and promised to sell airplanes at his disposal.

With unemployment at 18.3 percent, he also announced plans to create a million jobs, including 100,000 in the coming days.

''This government is going to undertake precise actions to show Argentines they can start to believe in the country again,'' he said.

However, some economists warned that Rodriguez Saa and other leaders from his Peronist party the country's largest have already shown reluctance to take the tough decisions needed to rescue the economy.

-- Anonymous, December 25, 2001


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