By Serena Parker Associated Press Writer Thursday, November 1, 2001; 8:10 PM
BUENOS AIRES, Argentina -- President Fernando De la Rua went on national television Thursday night offering an ambitious rescue plan for Argentina's ailing economy that proposes new measures to chip away billions of dollars from the country's heavy debt burden.
Speaking in a prerecorded national address, the president sought to defuse a week of growing investor uncertainty over the country's ability to avoid default on its $132 billion in debt, vowing his plan would in no way interrupt debt servicing payments to creditors.
"We will meet our obligations" to creditors, De la URA said in an address from the pink Government House. He vowed Argentina would not default or devalue its peso currency because of the grave economic crisis.
He said he wanted to reduce the debt-servicing costs that have forced the cash-strapped state to dispense with hundreds of millions of dollars a month to creditors. The plan called for bringing high interest rates down to single digits.
In his most important economic address in two years in power, the president bluntly told his 36 million compatriots that they simply had rung up far too much debt and that the country had no other choice but to take bold steps and seek a voluntary debt renegotiation
De la Rua and Economy Minister Domingo Cavallo want to restructure the country's debt load by offering greater payment guarantees in exchange for lower interest rates. The president said he was seeking new bonds at interest rates of 7 percent.
It's not clear if foreign lenders would be willing to accept such a move, which Cavallo's team characterized as "voluntary." Nervous markets had been awaiting the plan all week and the first test of its soundness is expected when trading resumed Friday.
Credit agencies have warned that a debt swap might be considered a partial default.
De La Rua also called for the nation to rally behind him in a time of crisis. He went ahead with his announcement despite a political impasse that continued Thursday with 23 provincial governors who balked at his calls to enlist in his effort to balance the budget.
The debt crisis has worried Wall Street and emerging markets for months as Argentina teetered on the brink of a possible default.
Argentina's unemployment rate has been stuck in double digits for years, the economy is stumbling after seven punishing rounds of austerity measures, and some cash-strapped provincial governments have resorted to paying state workers partly with bonds in lieu of cash.
With state coffers dwindling, De la Rua is locked in a bitter political impasse with the governors over the federal government's failure to pass along more than $500 million in tax revenue owed to the provinces.
But the government has said it doesn't have the money at a time when Argentina must come up with $1.1 billion to service its debt this month and another $774 million in December.
The International Monetary Fund apparently has no immediate plans to come to the rescue, as it has twice already since December. An IMF official, Thomas Dawson, told reporters in Washington Thursday that releasing any funds ahead of schedule was "not in the cards" at this time.
Argentina's next IMF loan is a $1.3 billion installment that will be available in December.
Argentine governors resumed meetings Thursday to discuss the federal government's proposal for spending cuts and tax-revenue sharing measures. But differences remained between the two sides.
As well as offering a strategy for debt, the president on Thursday also offered sales tax relief to those who make purchases with credit cards. He also proposed modest payments to low-income households and the unemployed to spur consumer spending.
However, critics say far more needs to be done to encourage consumers to begin spending again, a necessary step to raise badly needed tax revenue to pay off the debt. On Thursday, the government announced that collected taxes fell 11 percent in October after plunging 14 percent in September.