Argentina prepares for talks with US

Mr Rodriguez Saa said he would not devalue the peso

Argentina's new government is preparing to send a high-level team to Washington to discuss an economic reform package observers fear amounts to default.

Delegates are set to meet officials from the International Monetary Fund and the administration of US President George W Bush, sources told the BBC.

This is not a rejection of foreign debt... but rather the first move by a rational government to deal with the foreign debt correctly

Adolfo Rodriguez Saa

Talks will cover Argentina's moves to suspend debt repayments, and introduce a new currency, announced since Adolfo Rodriguez Saa took over as president on Sunday.

While details of the reforms have yet to be unveiled, the government has promised to flesh out its ideas by Thursday.

"In 48-72 hours we will finish the economic programme details and we will give a news conference," said an adviser to Treasury, Finance and Public Revenue Secretary Rodolfo Frigeri, Argentina's top economic official.

Debt controversy

Mr Rodriguez Saa predicted a warm international response to plans to renegotiate terms of the country's $132bn debt mountain.

The plan would see cash diverted from debt repayments to create jobs and pay pensions, in a drive to boost Argentina's flagging economy and soothe the public anger which led to the resignation last week of former president Fernando de la Rua.

"This is not a rejection of foreign debt... but rather the first move by a rational government to deal with the foreign debt correctly," Mr Rodriguez Saa said.

But many observers have warned that the proposal amounts to default, which Argentina has attempted to avoid over the risk of alienating international investors, and discourage cash inflows which would help rebuild the country's economy.

There was no immediate reaction from the International Monetary Fund (IMF) or the US Treasury to the moves, but Italy and Spain have both pledged to extend credit lines.

Global financial markets were largely calm, as the default had long been expected, and there are few signs yet that the crisis could affect confidence in other less developed countries, as some observers had feared.

Printing a new currency

Economists say that Mr Rodriguez Saa's real challenge is to lead Argentina out of its four year recession.

At least 25 people died in the rioting

The interim president said he would not devalue the national currency, the peso, nor end its peg to the US dollar - seen by financial analysts as alternative ways to deal with Argentina's enormous economic problems.

Mr Saa plans to create a third currency rather than opting for the unpopular measures of devaluation or dollarisation.

The new currency, to be issued as negotiatable bonds, will allow new funds to be channelled into social programmes and calm the unrest.

Cheers

The new leader, who smiled broadly after taking the presidential oath, will hold office until March, when national presidential elections will be held.

President Bush sent a message wishing the new president every success and assured him that excellent relations between the two countries would continue.

Argentina's economic woes

Public foreign debts of $132bn

Unemployment at 18%

Economy in recession for four years

Savers only allowed to withdraw $250 a month in cash

2,000 people drop below poverty line each day

Pensions to 1.4m retirees delayed

His appointment was approved by 169 votes to 138 after opposition parties objected to the rules that have been drawn up for those elections.

In a populist address to Congress which was regularly interrupted by cheering and applause, Mr Rodriguez Saa pledged a "new republic" to "tackle social injustice and eliminate social conflict".

He also announced plans to create one million jobs to combat unemployment, now at 18%, as well as distribute emergency food supplies to the needy.

Treasury chief Rodolfo Frigeri is a former head of one of the country's largest state financial holdings.

The post of economy minister, formerly held by Domingo Cavallo, may not exist in the new Cabinet.