Argentina suspends debt payments

Mr Rodriguez Saa said he would not devalue the peso

Argentina has announced that it has suspended payments on its $132bn foreign debt - the biggest default in history.

The Republic has taken this decision because an enduring economic recession, coupled with a lack of access to the international capital markets, have impaired public finances and brought hardship on the Argentine population

Government statement

The deferral of payments follows months of economic crisis and several days of rioting that left more than 20 people dead and forced the resignation of the government last week.

The new president, Adolfo Rodriguez Saa, has said he will issue a new currency, the Argentino, in addition to the peso and US dollar.

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

Mr Rodriguez Saa also promised to create one million jobs.

Argentina, Latin America's third largest economy, will not technically be in default until it misses the next payment on its debt.

Talks with creditors

The government plans to start talks with its foreign creditors over the restructuring of its debt "shortly."

At least 25 people died in the rioting

It is preparing to send a high-level team to Washington, to meet officials from the International Monetary Fund (IMF) and the administration of US President George W Bush, sources told the BBC.

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.

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

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.

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.

No devaluation

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

Mr Rodriguez Saa says his priority will be the people

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.

The new leader will hold office until March, when national presidential elections will be held.

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.