The political and economic crisis in Argentina deepened suddenly last night with the resignation of President Fernando de la Rua, following the deaths earlier in the day of at least 20 people in street riots, lootings and demonstrations. Pressure will continue to mount on whoever takes over to scrap the dollar convertibility policy that has brought the country to the brink of bankruptcy. If Argentina defaults on its $132 billion public debt it would be the biggest such financial failure and would have ripple effects throughout the Latin American and world economies.
The immediate crisis was triggered by the International Monetary Fund's refusal to extend credit so that the current schedule of debt repayments could be met. It insisted that much deeper reductions in public expenditure should be made than the opposition Peronists, who control the country's congress, are willing to agree to in next year's budget. It fell to Mr Domingo Cavallo, minister for finance, to announce wage and pension cuts using special powers that have hit the poor and the middle class very hard - so much so that they have taken to the streets in a dramatic manifestation of popular anger.
The sight of mainly middle class demonstrators throwing back at Mr Cavallo his accusation that the riots had been provoked by "enemies of the republic", after he had resigned, graphically illustrated the depth of feeling involved. Such people have been prevented from removing savings from the banks in anticipation of a devaluation that would ruin many of them.
The dollar pegging arrangement was put in place in 1991 by President Carlos Menem to cure hyperinflation He presided over a consumer boom funded by borrowing, privatisation and neo-liberal policies, which collapsed in a welter of corruption scandals, giving way to the centre left government of President De la Rua two years ago. It has struggled to bring the economy under control, but has been continually frustrated by the dollar peg policy, which has ruled out a devaluation strategy.
President De la Rua's refusal, earlier yesterday, to accept the resignations of the cabinet, with the exception of Mr Cavallo, looked as unconvincing as his own survival. The IMF says it is willing to work with whatever government is in office, but is not ready to bail it out by relaxing the insistence on restructured public expenditure to finance debt repayments. It seems to prefer making an example of Argentina to deter other states which might contemplate debt repudiation. That is a risky approach indeed, which could well provoke the biggest state default in history. To avoid it, most observers expect the peso will be floated, with the government having to face up to the dire consequences for millions of individual savers who will lose their savings.
Either way Argentina faces a difficult period as it grapples with this crisis, which has built up over many years. Similar convulsions led to the military coup in the 1970s, during which 30,000 people disappeared in a savage repression. Fear of such an outcome had led many people to think twice about forcing Mr De la Rua to leave office before his four year term was completed. Now the die is cast.