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Argentina teeters on possible economic collapse

BUENOS AIRES, Argentina (CNN) -- In the wake of two days of rioting and President Fernando De la Rua's resignation Thursday, one of the world's top financial rating agencies said the government was about to default on $97 billion in debt.

The international rating agency Fitch described default on the debt by the government as "imminent." Fitch currently gives Argentina's bonds a "DDD" rating, or junk status.

"Argentina's default will be the largest default by any debtor," the agency said. Around $600 million in bond payments are due through the end of December, it said.

Argentina has South America's second largest economy after Brazil, but it has been faltering after a four-year recession that has led to 20 percent unemployment.

The government owes around $132 billion, mostly to bond holders, and economists said without international help it has little hope of avoiding history's worst debt default by a sovereign nation.

Argentina declares a state of seige as rioters take to the streets. CNN's Lucia Newman reports (December 20)

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The International Monetary Fund has so far refused to release a $1.3 billion loan payment, saying the country has failed to balance its budget despite the plan. In Washington, a senior U.S. official hinted of some assistance but not right away.

The government has tried a number of austerity programs over the past several months to deal with the crisis.

But it was those measures that set off the rioting that led to De la Rua's resignation after the opposition Peronist party refused to form a coalition government with him. Economy Minister Domingo Cavallo resigned earlier in the day.

De la Rua gave his resignation letter to the president of the Senate before leaving the presidential palace for his private residence by helicopter.

"I trust my decision will contribute to pacify the country and maintain the institutional continuity of the republic. I therefore ask the Honorable Congress kindly to accept it," the letter said, according to a translation by Reuters. "I salute you with my highest regards and esteem for God and my country."

Following hours of tense and violent demonstrations, demonstrators cheered and celebrated in the streets after De la Rua left.

The National Assembly has to formally accept the resignation. The president of the Senate, Ramon Puerta, is next in line but would have to be ratified by the National Assembly as interim president. National elections would have to be held within 90 to 100 days.

De la Rua was a former Buenos Aires mayor and was in the second year of a four-year term.

Riots and state of siege

Before the resignations, protesters rallied outside De la Rua's presidential palace where riot police on horseback repeatedly pushed them back with batons, water cannons, tear gas and rubber bullets. Hundreds were arrested.

Across the city, rioters smashed store windows and ransacked buildings. Fires were set on street corner after street corner, in trash bins and at bus stops.

More than 2,000 people have been arrested nationwide. Reports of the number of dead cite anywhere from six to 20 people killed since the riots began Wednesday.

"I'm going to fulfill my duty to the end," De la Rua said in a speech before his resignation.

De la Rua late Wednesday declared a state of siege that suspends constitutional rights for 30 days and gives the government wide-ranging power to stop riots and other violence.

Rioters who ransacked and set fire to grocery stores and other shops around the capital Wednesday said they were hungry and complained the government has not helped them.

The government agreed to release $7 million to provide food for the neediest. Protesters waited impatiently Thursday for the food's distribution.

Looting turned to protest as tens of thousands of people beat pots and pans, clapped, waved flags and took to their cars, honking horns to protest what they saw as an insufficient reaction to the problems they face.

Firefighters rushed to extinguish fires set off around the presidential palace by incendiary devices.

U.S. offers no immediate help

In Washington, a senior U.S. official said the Treasury Department would not offer immediate assistance.

The official said the U.S. government anticipated the "totally chaotic and frenzied" political drama playing out in Buenos Aires and had warned the country's economic minister and other top officials who visited Washington in August.

"We're not going to sweep in and take their debt away," a senior Treasury official told CNN. "There's not a lot we could do. The International Monetary Fund could offer $100 million in aid and I'm not sure what good it would do right now."

The official did not rule out "small, minor" assistance in the coming months, but said the Bush administration would allow the situation to play itself out.

State Department spokeswoman Brenda Greenberg said the United States has "many shared interests and values" with Argentina and looks forward "to an equally close and cooperative relationship with the successor of President De la Rua."

"Argentina is our neighbor, valued ally and friend," Greenberg said in a statement. "The United States appreciates the warm relations that our two countries have enjoyed and values the close working relationship developed with President De la Rua during his two years in office -- we wish him well in his future endeavors."

Greenberg also said the United States has confidence in the strength of Argentine institutions, and encouraged the people of Argentina to pull together to find a solution to the current crisis.

-- CNN Correspondent Lucia Newman contributed to this report.


• Fitch international rating agency

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