Rioting Forces President Out in Argentina

President Fernando de la Rua resigned Thursday as tens of thousands of Argentines defied a state of siege he had declared less than 24 hours earlier when violence tore through the recession-ravaged country.

De la Rua stepped down after opposition legislators in the Peronist party declined his offer to form a government of national unity, the president’s last hope of holding on to power after two days of rioting that shook many of the nation’s largest cities.

“I have faith that my decision will contribute to the social peace,” De la Rua wrote in his letter of resignation. “I pray to God for the future of my country.”

With the post of vice president vacant, the line of succession fell to the Peronist head of the Senate, Ramon Puerta. He was set to be sworn in at an extraordinary session of Congress today.

The change in government does little to change the problems facing this large South American nation, which has been under pressure to make good on payment of its $132-billion foreign debt.

Experts believe that a Peronist government could devalue the Argentine peso, which has parity with the U.S. dollar, although such a move could squeeze Argentines even more by cutting the peso’s purchasing power overnight. Alternatively, the new administration might default on Argentina’s massive debt, which would have repercussions for the world economy.

“There is no way out that doesn’t involve suffering,” said Gary Hufbauer, senior fellow at the Institute for International Economics in Washington. “Every new course of action carries with it significant pain.”

More than 20 people have been killed during the two days of violence prompted by the government’s severe austerity measures.

In Washington, White House spokesman Ari Fleischer said the United States is concerned about the unrest and Argentina’s economic future.

“We continue to hope and want Argentina to work with the [International Monetary Fund] to resolve the situation in a way that leads toward what is necessary,” Fleischer said. “And that is sustainable economic growth.”

Initial reaction in neighboring financial markets was muted Thursday.

A bland Radical Party activist with a reputation for honesty, De la Rua came to power in 1999 promising to wipe out corruption. But he was done in by his alliance with Domingo Cavallo, the conservative technocrat he named as finance minister in March, hoping he could rescue Argentina from its economic woes.

Cavallo crafted an austerity program that included pay cuts and layoffs for government workers and stiff reductions in social security payments. Argentines endured the belt-tightening measures for months, seeing them as a lesser evil than the rampant inflation of the 1980s.

But on Dec. 3, with the global recession driving the government deeper into the red, Cavallo and De la Rua took the step that would be their undoing.

They ordered strict limits on how much Argentines could withdraw from their bank accounts: just $250 a week. The reason was to prevent a run on the country’s banks as depositors withdrew savings. The highly unpopular measure hit the nation hard just as the holiday shopping season was beginning. Cavallo was widely reviled as a Scrooge who ruined the nation’s Christmas.

“When they took our savings hostage, this whole thing exploded,” Juan Barfield said as he joined a group of leftist marchers preparing to confront police in Buenos Aires, the capital, on Thursday. “Now De la Rua will fall. It’s the only way out.”

Financial Markets Weather the Storm

Moments after the text of his resignation letter was released to the media at 7:45 p.m., Argentine television showed the presidential helicopter shuttling De la Rua away from the roof of the “Pink House,” which contains the president’s offices.

Peronist governors were said to be meeting in the provincial city of San Luis to draft a “plan of national salvation.”

Despite the political chaos, the immediate reaction by financial markets was mild.

Although the value of Argentine bonds sank, stock markets around Latin America were relatively calm Thursday, reflecting the fact that Argentina’s collapse has been widely anticipated.

“We think the region can cope fairly well. We don’t think you will see the global contagion you saw after Russia’s loan default in 1998 or even regionally in Latin America,” said strategist Robert Berges of Merrill Lynch, which, despite Argentina’s problems, expects the region’s economy to grow 1.5% in 2002, up from 0.5% this year.

Neighboring Brazil’s financial system has adjusted to Argentina’s problems. Over the last two months, Brazilian stocks have gained 52% in dollar-adjusted terms, while its currency has risen 16%, hardly the picture of a region racked by contagion, said Geoffrey Dennis of Salomon Smith Barney in New York.

Many economists, including Larry Goodman of New York-based GlobalEcon, said they hope for some form of “dollarization”: devaluing the peso or even having the dollar perhaps replace the local currency.

De la Rua’s resignation climaxed a turbulent week that began Monday with isolated looting of grocery stores in impoverished neighborhoods of suburban Buenos Aires and a few provincial cities. On Wednesday, the unrest spread to nearly every corner of this country of 37 million. As mobs attacked markets, some grocers distributed free food to try to quell the unrest.

On Wednesday afternoon, De la Rua declared a state of siege, granting him the power to restrict constitutional guarantees. But that move only sparked more protests in a country with still-fresh memories of military dictatorship.

In Buenos Aires, residents gathered on dozens of street corners, banging pots and pans and chanting for De la Rua to go.

De la Rua countered just a few hours later--about 1 a.m. Thursday--with another dramatic move. He accepted the resignations of most of his Cabinet members, including Cavallo.

As the sun rose Thursday, Argentina was witness to an extraordinary political vacuum. De la Rua huddled with his few remaining advisors, giving no sense of what he might do next.

About 2,000 people gathered at Buenos Aires’ Plaza de Mayo, demanding the president’s resignation in a series of angry chants. Peaceful at first, the demonstrations evolved into raging street battles when riot police tried to clear the square.

Two armored vehicles equipped with water cannons protected the Pink House. Dispersed throughout the streets around the plaza, crowds of angry protesters set fire to banks and other buildings in the central business district. Police responded with volleys of tear gas and rubber bullets.

Five people were killed in or around the Plaza de Mayo, most of them elderly men, according to television reports.

2,000 Arrested as Protests Grow

Authorities arrested more than 2,000 people nationwide, including 350 in the capital. In Buenos Aires, one man was dragged by his hair, others were carried kicking and shouting to police vans.

As the protests grew larger and even more violent, rumors spread through the city that the president was about resign. But when De la Rua finally addressed the nation just before 5 p.m., it was to say he would not step down.

“I am here not because I want to hold on to my office, but because it’s my duty” said the president. He struck a defiant tone, despite looking worn and tired. He said he would complete his term, which was set to end in 2003.

Leaders of the Peronist party quickly responded that they would not join any government led by De la Rua. Humberto Roggero, head of the opposition caucus in the lower house of Congress, said the president had “shown he will not listen to the will of the people.”

The nation’s two largest labor confederations called for a general strike to begin Thursday and last indefinitely until De la Rua resigned. Public transportation in one of Latin America’s largest cities soon came to a standstill.

With most Argentines transfixed by televised scenes of anarchy, even a few members of the ruling coalition began to call for De la Rua to resign. Anibal Ibarra, mayor of Buenos Aires, said that “the government of De la Rua is finished.”

Now that De la Rua is gone, the new government inherits a country with hundreds, if not thousands, of damaged businesses and an unemployment rate of 18%. Its first moves will be closely watched in the world’s financial capitals.

“Whatever the new leader adopts, you won’t get results right away and, in the meantime, you have people marching in the streets,” said a Washington economist who asked not to be identified. “How do you keep democratic continuity? That’s going to be the challenge.”

In one of his first actions, Puerta said he would ask De la Rua’s Cabinet chief, Chrystian Colombo, to stay on for at least 48 hours to aid in the transition to a new government.

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Times staff writers Chris Kraul in Mexico City and Edwin Chen in Washington contributed to this report.