Argentina Falls Into a Pit of Poverty, Hunger

BUENOS AIRES —  Argentines, who lived as well as the Italians and the French a few decades ago, face a staggering prospect: The minimum wage by the end of June could be worth $10 a month--less than that of Haiti, the world’s poorest country.

One of the world’s great granaries and beef producers is now coping with the unprecedented reality of hunger. The posh downtown bistros are still crowded, but the decaying industrial belt around the capital has slid into depression.

In May, the hardships and disparities became insupportable. Rioters destroyed hundreds of stores in an explosion of looting that left 15 dead, the first such unrest in Argentine history.

Argentines long have sought to find the causes of their protracted decline, hoping that, in the process, they might discover the road back to prosperity. All sectors seem closer than ever to a consensus on the diagnosis: equally greedy siphoning by the state itself, business and labor, that finally coalesced into a hypercrisis in a country accustomed to crises.

Inflation used to be expressed in annual terms, then monthly and even weekly. Now people think of a daily inflation rate: Prices were climbing in early June by 3% a day. In 1985, one Argentine austral was worth $1.20; by the middle of this month, a dollar was buying nearly 400 australs. The biggest bill, until recently, was 100 australs. This month, the mint began printing 50,000-austral notes.

The powerful trade unions, which staged 13 general strikes for better wages and benefits in the past five years, now are reduced to asking employers to give advance notice of layoffs and to rotate suspensions among the staff.

The food riots underscored President Raul Alfonsin’s brinksmanship as he struggled to serve out his term. The government imposed a 30-day state of siege and rounded up 2,000 people in containing the violence. Aware that none of the basic causes has been addressed, few analysts are confident that the trouble will not recur.

The sense of desperation has never been more profound.

In San Miguel, an industrial suburb 20 miles northwest of the capital, three young men and a woman stood chatting a block from the site of some of the worst rioting the previous day. Their stories suggested the impact of the hyperinflationary implosion and the dangers ahead for Argentina.

One youth had been laid off by an air-conditioning firm two weeks before. Suppliers could not quote prices and refused credit, so the business closed. Another, laid off from construction, said: “Cement went from 80 australs a bag to 400 in two months. Who can build anything?”

Salaries Plummet

The woman, Maria Lopez, 46, said she had been dismissed two months earlier by a video machine assembler and was given 10,000 australs, then worth about $100, as severance pay after 14 years’ work. She survives with her husband on his 4,000-austral ($20) salary as a security guard. Waving toward the looted shops and the cordon of helmeted police along the avenue, she said, “We are not subversives. We are hungry and have no work.”

They are some of the victims of a graphic decline. Illustrations of the problems abound:

- Real salaries are at one-half to one-third of their level when Alfonsin took office in 1983.

- Retail prices rose 78.5% in May alone, and wholesale prices surged 104%.

- Suppliers who used to give customers 30 to 45 days to pay, now want cash on delivery, and credit is virtually unavailable.

Cesar Suraski, a downtown furniture store owner with his own factory in the suburbs, said his sales are 10% to 15% of the level they were two months ago, barely covering his store rent. With inflation approaching 100% a month, he can no longer sell on the installment plan or by credit card. He plans to close his store July 1--and his factory two months later--if things do not improve.

“I own the factory and also the machinery, and I don’t owe a cent to anyone,” Suraski said. “It’s incredible: Without any debts, I am still going under.”

The crisis has tarnished an event that should have been a triumphant expression of Argentine political maturity. President-elect Carlos Saul Menem of the Peronist party was elected in May to succeed Alfonsin of the Radical Civic Union, in the nation’s first genuine constitutional transition of power from one party to another since 1916.

Fallen Back 20 Years

Disgraced by his economic failings and helpless as a lame-duck president with little credibility, Alfonsin announced last Monday that he will hand over power on or soon after June 30, more than five months early, to give Menem a chance to begin his economic program.

While some quick legislative maneuvering will make it legal, no one denies that the emergency changeover is itself a defeat for the nation’s institutions, even if the leadership passes this time to another elected president rather than to the armed forces, as in the past.

The depth of the crisis is clear to Cristina Rizzo, the 37-year-old owner of a kiosk in the lower-middle-class neighborhood of Flores Sur, in southeastern Buenos Aires. Two months ago, she sold 20 packs of cigarettes a day; now, she does not sell five.

“We have fallen back 20 years, because we are again selling cigarettes one by one,” she said. “People can’t afford a whole pack.”

Candy bars and other once-healthy sellers are also out of reach.

“At these prices, this merchandise is on exhibition,” Rizzo said. “We put it in the window, as if it were a jewel, and we don’t sell it to anyone.”

Victor Emanuele, owner of an aerosol can factory, said orders had vanished in the past two months, after more than a year of decline that already had cut sales by 60% in 1988. His 50 employees “now spend their time cleaning what they cleaned yesterday, painting what is already painted or just doing nothing,” he said.

Even the president’s advisers admit that Alfonsin squandered a wealth of good will after taking office in December, 1983. He made almost no progress in attacking the inefficient state government--with its several hundred deficit-laden businesses ranging from telephones to the oil company--or in boosting tax revenues.

The railways lose $2 million a day; signs in stations state that 30% of the riders do not pay, yet rarely does a conductor ask to see a ticket. The national budget deficit has surged to an estimated 15% of the gross national product.

But Alfonsin’s defenders also justifiably note that he inherited structural problems that would have thwarted a financial wizard.

The current hyperinflation, virtually all analysts agree, is rooted in decades of failed economic policy, with the blame resting not just on the government but also on many powerful interest groups within the society:

- The armed forces, following the first of their six coups against civilian governments since 1930, sought to carve a role as national arbiter and savior, undermining constitutional norms and periodically removing the politicians from accountability.

- Trade unions got more pay and benefits than their productivity warranted, especially in the years since Gen. Juan D. Peron imposed his brand of worker-based nationalism on Argentina in the mid-1940s.

- Businesses sought and received protection from foreign competition, fat government contracts and uncounted subsidies, such as costly industrial promotion schemes, that isolated Argentina from the fast-developing and intensely competitive world markets.

- Foreign banks happily filled the military government’s treasury with the petrodollars of the 1970s to levels far beyond any conceivable ability to repay and then derailed efforts by the new civilian government to ease the repayment burden. The debt is now nearly $60 billion--almost $2,000 a person--in a country with a gross domestic product of about $80 billion.

Cutting across all sectors, a sentiment emerged that paying taxes was somebody else’s problem, justified with the self-fulfilling rationale that “I would pay if the services were better.” The government disclosed recently that just 30,000 people out of a population of more than 31 million actually pay income tax.

A senior government official close to Alfonsin, who spoke on condition that he not be identified, said the principal failures of Alfonsin’s administration were the failure to stop tax evasion and the failure to rein in the informal, or black, economy.

He estimated the size of the informal sector at about $40 billion to $50 billion a year, forming at least a third of the overall economy but operating beyond government reach.

The growth of the black economy is one reason why, until now, the nation’s decline, in terms of statistics, did not translate into an equivalent real decline in daily life. Immigration from ostensibly healthier countries such as Chile, Uruguay and Bolivia has not abated, and electricity usage, considered a gauge of economic activity, steadily increased until recently.

Now, no one can find anything rising except prices. Eugenia Caporale, 64, who runs her own pharmacy in a working-class neighborhood, said sales had plummeted by half since April. A typical blood-circulation drug used mainly by the elderly sells for 1,000 australs ($3), of which retirees pay 200 australs (about 66 cents). But the retiree’s share for that drug alone during the month amounts to about 10% of the monthly pension, Caporale noted.

National health insurance used to pay pharmacies in 60 days--but after an uproar and the emergence of shortages, the government agreed to pay in 15 days.

“We still lose, but not as much,” Caporale said. “And many people come in and ask the price and walk out. It’s the worst period I remember in 48 years as a pharmacist.”

Lax financial controls, from the top down, have permitted a vast flight of capital over the years. Argentines convert their savings into dollars and send them abroad into foreign accounts or put them under the mattress as the only reliable safety net. The result is a “dollarized” economy, where people think in terms of dollar prices even for wholly local goods. The price of potatoes rises as fast as that for imported clothes.

Egalitarianism Vanishing

Alemann estimated the errant Argentine capital at “something like $45 billion,” including profits earned abroad, “and more is leaving. People just have no confidence in this government.”

When Menem becomes president, he will have to cope with a political and economic landscape featuring greater disparities of wealth than ever before, with a rapid shrinking of the middle class that once formed the backbone of economic growth.

The rioting “was revealing of the social distances that have built up in Argentina in the last 10 years,” said Arturo O’Connell, an economist and foreign debt adviser to the Foreign Ministry. “In social terms, other Latin American visitors to Buenos Aires used to be surprised at the egalitarian way people related to each other. They were even incensed sometimes at the attitude of our waiters--other Latins are used to more submissive behavior.”

But the old egalitarianism is vanishing, he said, adding, “During our dictatorships, we have seen a Latin Americanization: Shanty towns are booming, life is more precarious, there is a growth in moonlighting, the informal sector is larger. There is a significant marginalization of the middle and working classes,” he said.

Looking to Private Sector

During the looting, working people repeatedly made that point. Teresa Legizamou, a 37-year-old mother of four in San Miguel, said, “Ten years ago, I could buy a Coke, buy some ham. Today, to have a Coke is a luxury. To buy ham, I would have to sell my kidney.”

A charity foundation that works with emergency health cases in the suburb of Tigre reported that malnutrition cases among its 40 needy families had risen from 6 last year to 29.

O’Connell contends that, while Argentina has virtually stopped interest payments on its medium- and long-term foreign debt and has run up arrears of more than $3 billion in the past year, the debt burden remains a key factor in the crisis.

“The debt not only drains resources but creates enormous instability and vulnerability,” he said. “The conditioning of loans on approval of your economic plans by the IMF (International Monetary Fund), by commercial banks, means that at any given time, you have 90 days in front of you in which no crisis confronts you. You have a continuing atmosphere of crisis.”

Yet the past tendency to blame the foreign debt for Argentina’s miseries has been overtaken by a broad recognition that the main causes are home grown and that the fiscal house needs to be put in order first.

Menem’s people, departing from traditional Peronist doctrine, are looking to the private industrial and agriculture sectors, not the state, in the search for solutions. The goal is to offer incentives for job-creating investment in place of speculation in the currency markets--now a survival mechanism for everyone from housewives to cab drivers.

There is widespread agreement that Alfonsin’s economic programs went halfway, relying on costly exchange rate manipulations to try to keep down the dollar without the accompanying fiscal and tax reforms to approximate a balanced budget.

The multibillion-dollar industrial promotion program, offering tax benefits for companies setting up branches in poor provinces, has been a classic example of abuse. The National Tax Board found that 368 of 488 audited companies were guilty of irregularities such as not employing the stated number of workers or producing far below the contracted levels. Many of the provincial operations are said to be little more than empty sheds that generate huge tax rebates.

Eduardo Amadeo, the Peronist president of the Bank of the Province of Buenos Aires, said Argentina’s chronic instability has left the country unable to accumulate wealth. He said it was partly true that the state had closed the economy and discouraged competitiveness, but “the failure of the old bourgeoisie to transform itself also has been a constant.”

The only positive result of the crisis, Amadeo said, is that “because of the hunger that people are suffering, Argentines are now prepared to endure the hardships that the reforms are going to entail.”

But O’Connell, the debt expert, said, “Hyperinflation is playing with fire. Once people learn that by robbing a market and rioting you can force the authorities to deliver the goods, we have gone back to a state of social chaos, without rules, without respect for authority. And this can only lead to a real tragedy.”

INFLATION RATE IN ARGENTINA

Consumer Price Index

1980 = 100

‘81: 204

‘82: 541

‘83: 2,403

‘84: 17,462

‘85: 134,833

‘86: 256,308

‘87: 592,920

‘88: 2,543,110

‘89: 11,760,512 *

* Projection

Source: Data Resources