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Argentine Leader Declares Default on $132 Billion Debt
CLIFFORD KRAUSS . NY Times . 23 december 2001

Adolfo Rodr’guez Sa‡, Argentina's new president, laughing during the swearing in of his cabinet ministers.

BUENOS AIRES, Dec. 23 — Adolfo Rodríguez Saá, a moderate governor from a tiny rural province, became the unlikely caretaker president of Argentina today after several days of civil disturbances. He immediately declared a default on the country's $132 billion debt, promising to use the money saved to create jobs and fortify social programs.

The default is the largest in history, but is not considered an imminent threat to other countries, developed or developing. That is because the crisis has been slow to unfold, and many creditors had opportunities to limit their risk.

That is in contrast to the experience of Russia in 1988, when it defaulted on part of its $200 billion in foreign debt, causing economic harm in many developing countries. But the default here does stand to cause damage locally, for Argentine banks and pension funds, and Argentines of every class are already suffering badly in the economic crisis.

Mr. Rodríguez Saá will serve for only three months, until an unusual national election is held on March 3 and a new president is inaugurated.

Neither elected nor experienced on the national stage, Mr. Rodríguez Saá will be responsible for shepherding the country through a crisis, with its economy in free fall and the electorate furious over years of government corruption. The banking system is on the point of collapse, one in five workers are unemployed, and the system of public health care and retirement benefits is in trouble.

Immediately, the new president must try to stabilize the country after a week of food riots, looting and political demonstrations left at least 29 dead and forced Fernando de la Rúa to resign as president on Thursday.

"We must take the bull by the horns," Mr. Rodríguez Saá, 54, told a joint session of Congress today after they ratified him as the interim president. In his speech, he announced the suspension of debt payments, without indicating when or how the government would resume the payments.

The lawmakers gave him a standing ovation, chanting, "Argentina! Argentina! Argentina!" Dressed in a white shirt, blue suit and matching tie, Mr. Rodríguez Saá pursed his lips, in a gesture of defiant resolution, and nodded his head in solemn acknowledgment of the cheers.

He will have to administer the country in the midst of what is expected to be a bitter political campaign for president pitting three or four powerful governors of his own Justicialist, or Peronist, Party.

The two heavy favorites in the March election are Carlos Ruckauf, governor of Buenos Aires Province, who served as vice president under former President Carlos Saúl Menem in the late 1990's; and José Manuel de la Sota, governor of Córdoba Province, a proponent of supply-side economics whose tax cuts have made him a favorite of big business.

Hundreds of protesters banged pots and pans outside the Congress early this morning as legislators debated the selection of the new president, as if to warn the politicians of more trouble to come if real changes were not made.

Mr. Rodríguez Saá took a populist tone in his address to Congress. "I believe in an Argentina without unemployment, without misery," he said in a speech that appeared to have been quickly drafted and had little rhetorical flourish.

He wrapped himself in the legacies of Gen. Juan Domingo Perón, the dictator who founded the Justicialist Party in the 1940's as a vehicle for big labor, and the Mothers of the Plaza de Mayo, a group that still demonstrates demanding information about the tens of thousands of people who disappeared during military rule from 1976 to 1983.

But Mr. Rodríguez Saá stopped well short of a complete break with previous government policy. Bank controls instituted three weeks ago by Mr. de la Rúa, which limit cash withdrawals from bank accounts to $1,000 a month, are remaining in effect even though they were an important cause of the rioting.

Mr. Rodríguez Saá also said he had no intention of ending the practice of pegging the peso's value to the dollar, a decade-old program known as convertibility that has brought the country stable prices but made its products costly on world markets as the dollar gained strength.

"A devaluation would mean decreasing salaries and consumer buying power and would only worsen our problems," he said. But economists both here and on Wall Street say a painful, and perhaps chaotic fall in the value of the peso is probably unavoidable within weeks.

The new president may be able to delay a devaluation as long as capital controls and a bank holiday remain in effect. But once banks reopen, there could be a big withdrawals of dollars if the capital controls ease, and economists say it would then be hard for the government to keep the currency peg.

Instead of devaluing, Mr. Rodríguez Saá said he would expand a policy initiated by Mr. de la Rúa of printing scrip in the form of low- interest bonds to pay government workers.

Scrip is already in use in Argentina, and is of questionable value, so people spend it quickly, and businesses are likely to accept it as long as they can pay bills and taxes with the money. Usually scrip loses value over time in what some economists call a "backdoor devaluation."

By ceasing payment on the debt, Mr. Rodríguez Saá can save the government as much as $10 billion or more next year, although Argentina is likely to be shut out of international financial markets for years to come.

Of the $132 billion owed by the government, about $45 billion is in bonds owed to foreign lenders, with the rest owed to domestic banks and pension funds and international lending institutions like the International Monetary Fund and the World Bank.

With the central government in default, the 24 provinces are almost certain to default on their $22 billion in total debts as well.

The de la Rúa government had already cut interest rate payments on domestically held bonds and had failed to pay any interest on several bonds in its final days in office.

The next president will be chosen in March by a peculiar system that combines party primaries and the general election. Voters will choose one candidate, but the candidate getting the most votes will not necessarily win. That is because the winner must come from the party that garners the most votes.

So in theory, if the Justicialist Party wins a majority of votes, its top vote-getter wins, even if his or her total, in a race split among several candidates, is far below the single candidate of another party.

The electoral system, formerly used in neighboring Uruguay, was worked out behind closed doors by Justicialist leaders who wanted to shorten the electoral season to a single balloting. But opposition parties cried foul, arguing that the joint session of Congress did not have the authority to change election law.

"This is an unconstitutional act that will hurt the legitimacy of the future president," said Congresswoman Elisa Carrió, who has founded her own leftist party and has declared her presidential candidacy. "How can a president that potentially will only win 2 million votes govern?" she asked, alluding to the country's population of 36 million.

Those concerns deadlocked the Congress on Saturday night, and delayed the ratification of Mr. Rodríguez Saá, who was chosen behind closed doors on Friday by Justicialist leaders as a neutral caretaker.

"We are choosing a weak president who will be followed by another weak president," a senior Justicialist leader said.

The election will take place at a time when Argentines are unsure of what political and economic direction they want to take. The demonstrations last week produced no new leaders, and there were few slogans aside from calls to root out corruption and overthrow a government long considered inept.

Recent polls show a total rejection of the political class, but little desire to scrap the free-market reforms of the 1990's to return to the unwieldy government programs of the 1980's that produced hyperinflation and shrinking economic activity.