Argentina, after formally installing yesterday what it promised would be a moderate military government in the Falkland Islands, responded early today to Britain's threat of naval action by creating a new military zone of its own around the islands and declaring it will act in self-defense there "at any time."
A government communique, issued after Britain announced that any Argentine warship within 200 miles of the Falklands would be subject to attack starting Monday, said an admiral had been appointed to supervise the new military operation zone. It was defined as encompassing 200 miles along the Argentine mainland and around the Falkland Islands.
Argentine Ambassador Esteban Takacs said in Washington that the British decision to declare "a formal blockade 200 miles around the Malvinas Islands as Argentina calls them is a measure of extreme gravity." He expressed particular concern that the British had acted after both sides had agreed to a mediation effort by Secretary of State Alexander M. Haig Jr., "in which we have great confidence."
The Argentine response to Britain's initiative came after a day in which Argentine officials repeatedly had stressed their willingness to mediate with Britain.
The military government flew a wide range of its civilian political and labor opponents to the islands yesterday morning to watch the swearing in of Gen. Mario Benjamin Menendez as governor. Interior Minister Alfredo Saint-Jean declared that the country's old civilian and military adversaries were now "brothers as never before."
Saint-Jean, the ranking Argentine official at the ceremony, also said he was "optimistic" that armed conflict with Britain over the disputed South Atlantic archipelago could be avoided. He said he had "a lot of respect for Mrs. Margaret Thatcher and we believe the English government should reflect on the matter."
Saint-Jean's mild remarks, made to reporters as officials embarked for the ceremony in the island town of Port Stanley--now called Puerto Rivero by the Argentines--reflected efforts by Argentine officials to retain control over their new territory while avoiding the British fleet now headed for the area.
As the president, Gen. Leopoldo Galtieri, met with his Cabinet yesterday to consider U.S. attempts to mediate the dispute, Argentine officials tried to defuse the crisis and gain international support by stressing what they said were good conditions on the islands and denouncing British attempts to reclaim them as "anachronistic" and a "war to return to a colonial position."
At the same time, war-like measures and tensions continued to grow here. Officials recalled part of the last group of draftees released from military service and turned away journalists seeking to observe military operations at the southern port of Comodoro Rivadavia.
Newspapers in the capital were ordered to restrain their coverage of the approaching British fleet and of Argentine military preparations, according to sources.
Life in Buenos Aires remained calm, but the effects of the crisis and the economic sanctions adopted by Argentina and Britain took their toll on the already stricken Argentine economy. As fearful savers withdrew large sums from financial markets, interest rates soared by 60 percent and annual interest rates on fixed deposits went to 240 from 150 percent. The annual inflation rate is already 140 percent.
Argentina also has one of the world's larger foreign debts, $34 billion, a large portion of which is owed to banks in London. Tuesday, a team of officials flew to the United States to seek ways of raising the $7.2 billion Argentina is due to pay this year, much of which it normally would have borrowed from British banks.
Despite assurances that conditions were normal, Argentine officials refused to allow journalists to attend yesterday's ceremony in the islands and said there were no immediate plans to allow foreigners into what was called a "theater of operations."
Saint-Jean said that the 1,800 residents of the 200 islands, most of whom are of British descent, "are going to enjoy all the rights of foreigners who live in our country," and could remain British citizens if they chose.
Other officials indicated the residents might be offered compensation if they chose to move back to Britain. The islanders were said to be under no major restrictions and were free to conduct their normal activities.
In a dispatch filed Tuesday night from the islands, Telam, the state news agency, maintained that residents had dropped their initial hostility toward the Argentines and offered to help in administrative and defense chores. However, Telam described the islanders--called "kelpers"--as "cold, distant, uncommunicative--in a word, English."
Officially, Argentina has sought to make itself welcome in the Falklands, where sheep outnumber people 385 to one, by quickly outlining a program of services, including the improvement of transportation and installation of television and bilingual radio service.
Gov. Menendez, who battled Argentina's guerrillas the 1970s, told a magazine in an interview before his departure that while his English was spotty, he was taking a Cabinet of English-speaking officers to the territory. His first plans, he said, were to reopen postal operations and issue a new stamp saying "Republic of Argentina, Malvinas Islands."
Amid these assurances, government officials also sought to tighten their bond with this country's political parties and major unions, which were quick to back the seizure of the Falklands last Friday.