Argentina's new president Adolfo Rodriguez Saa announced on Sunday that his country would suspend payments on its foreign debt.
Argentineans are hit hard by the economic crisis
Shortly after he was sworn-in on Sunday, Argentina's new president Adolfo Rodriguez made an announcement that many analysts had seen coming. Saa said Argentina would suspend paying its huge foreign debt.
Saa described suspending the payments as "the first move by a rational government to deal with the foreign debt correctly."
The country's new president promised he would divert the money earmarked for debt payments to labor and social projects.
Adolfo Rodriguez Saa waves Sunday, Dec, 23, 2001, at the Congress in Buenos Aires, moments after he was sworn in as Argentina's interim president.
"International markets will react well because we will negotiate with them," Saa continued. He announced Argentina would negotiate with international organizations, the U.S. and the Europeans. "The situation in Argentina is difficult. I'm asking for help," the new president added.
Argentina has debts of more than 150 billion euro ($ 135 billion). The country is battling with a four-year recession and 18.3 percent unemployment. Almost half of the 36 million Argentineans live below the poverty line.
Last week, dissatisfaction with the old government's economic policies drove thousands of Argentineans to the streets.
Days of violent protests and looting turned the capital Buenos Aires and other cities into battlegrounds. At least 25 people died in the unrest. The violent demonstrations on Thursday led to the resignation of President de la Rua.
Debtors' saw it coming
The International Monetary Fund, the U.S. and foreign banks were aware of the fact that the social and political cost of keeping up debt payments had become unacceptable for Argentina.
U.S. Treasury Secretary Paul O'Neill said on Friday it was "quite clear" Argentina could not service its outstanding debt.
Argentina's European allies France and Italy acknowledged that the country could no longer stand IMF-prescribed austerity measures.
Argentina's new President hopes to revive the economy by introducing a new currency alongside the peso. Saa made clear that he would not devalue the peso or dollarize the economy.
The peso has been pegged to the dollar for the last 10 years. But this has led to the currency being overvalued, which has been bad for export.