- The Washington Times - Monday, May 17, 2004

CORDOBA, Argentina — Ramon Caballero pedals into a dim warehouse towing a rusted cart loaded with flattened cardboard boxes, a plastic-fiber sack full of broken glass and his 11-year-old son.

After scouring hundreds of blocks by bicycle in search of recyclable refuse in Argentina’s third-largest city, Mr. Caballero and his son are ready to cash in.

Eighty-four pounds of cardboard and glass get them two wrinkled 2-peso notes, each worth 70 cents in the United States, and a few coins. It is barely enough to buy a pound of spaghetti, two loaves of bread and a quart of milk.

Mr. Caballero, 34, is not complaining; he has seen worse days.

“Thank God we’re surviving,” said Mr. Caballero, who began scavenging for trash four months ago after more than a year of scraping by on the occasional odd job and of seeking work without success.

“Last year,” he said, “we didn’t have enough to eat. … I had to sell everything: my truck, my car, even my bed. I was left with nothing.”

Two years after hitting bottom, Argentina’s economy is creeping back to life.

Last year, the economy expanded 8.7 percent, more than in any other country in the Western Hemisphere. The Central Bank has predicted 8 percent growth again this year.

But in much of Argentina, the turnaround is only faintly perceptible, if at all. Nearly 20 percent of the work force is still unemployed or living on $50-a-month welfare plans, and 48 percent of the population remains below the poverty line, which is $250 a month for a family of four.

Many of Argentina’s hard-hit poor and middle class say economic conditions are improved only to the extent that they are not worsening.

Analysts say the economy is not so much growing as climbing back to pre-crisis levels after five years of recession, which ended with a 10.9 percent contraction in 2002. Spurring this recovery has been a favorable exchange rate since the government devalued the peso in January 2002 after more than a decade of pegging it to the U.S. dollar.

The devaluation boosted domestic industry, which suddenly has become competitive in relation to prohibitively expensive imports — a phenomenon known as import substitution — and sparked a boom in the export-oriented agricultural sector, especially in the production of soybeans.

But the signs of economic recovery are indiscernible in the nation’s growing urban slums. The devaluation hammered the urban poor, who now pay two or three times more for basics such as flour, sugar and cooking oil while their income has stagnated or shrunk.

In the Cordoba shantytown of Capullo de Esperanza, which means “Bud of Hope,” Silvana Frias waits in a dirt alleyway at the front of a line of about 20 people, an empty plastic bowl in her hand and her 2-year-old son wobbling at her side. Smoke wafts from a wood-burning fire in an open-air kitchen shielded by a corrugated zinc roof, and the pulsing cuarteto dance music — a staple among Cordoba’s poor — thumps away nearby.

This is Mrs. Frias’ first visit to Perlitas de Maria food kitchen. Her husband, a construction worker, has not found work since he went on welfare a month ago, and their meager savings have since disappeared. For now, they are surviving on a monthly welfare check worth $35.

“Things aren’t any better. If anything, they’re worse,” said Maria Lopez, 29, scrubbing smoke-stained pots at the food kitchen where she has worked in a government welfare program for the past year. “Money doesn’t last like it used to. Just keeping my three kids clothed is tough.

“Whenever I get my [welfare] check, I end up spending all the money right way,” she said. Mrs. Lopez’s husband is one of the few people in Capullo de Esperanza with a steady job. He makes $5 a day rolling cigars from 9 a.m. to 9 p.m.

Job prospects are not much brighter for the middle class.

At an employment center in downtown Cordoba, Horacio Agustin Vazquez slumps away from the receptionist’s desk, resume in hand.

“You apply for a job as a paper boy, and there are another 50 people in line right behind you,” said Mr. Vazquez, 22, who has been looking for work for two weeks, since quitting his job as a waiter. “I prefer to be jobless and hungry, with the possibility of finding something better, than working for 5 pesos a day.”

Since taking office 11 months ago, President Nestor Kirchner has won broad public support — not so much for his handling of the economy, but for his public attacks on Argentina’s notoriously corrupt political elite, and his boldly progressive human rights program.

He also has won favor railing against the U.S.-promoted liberalization policies that transformed the economy in the 1990s, while promising stronger state intervention to bolster the domestic market.

But some critics say Mr. Kirchner and his economy minister, Roberto Lavagna, have done little to put their “Neo-Keynesian” strategy into action.

Government spending is down, credit and foreign investment continue to be scarce, and Mr. Kirchner so far has left a grossly regressive tax system intact: Public revenues depend largely on a 21 percent sales tax.

“The government doesn’t have much of an economic policy,” said Alan Cibils, a Buenos Aires-based economist who works with the Center for Economic and Policy Research of Washington, D.C.

“Kirchner really hasn’t done anything substantial to dismantle the neoliberal economic model he inherited. … The rhetoric is definitely very different and the talk is different, but the actions so far are not.”

Economists from both the left and right warn that the economy is approaching a bottleneck. They say growth will falter when the economy returns to its pre-crisis capacity without new investment, pointing to gas shortages and power outages as an example of the limits to the upswing.

How the government will face this bottleneck hinges on pending debt negotiations with the International Monetary Fund (IMF) and other international creditors.

Although Mr. Kirchner has taken a tough negotiating stance with foreign bondholders, demanding a 75 percent reduction of more than $80 billion of debt, he has assuaged the IMF with a promise to make debt payments with a budget surplus equivalent to 3 percent of gross domestic product — more than twice what the federal government spends on health and education combined.

In recent weeks, the IMF has begun to push Mr. Kirchner to increase that number in anticipation of negotiations in the coming months.

Although some economists say these debt payments must be made in order to reassure wary investors and revive credit markets, others say the sheer size of these payments precludes the progressive and proactive economic and social policies that Mr. Kirchner has professed.

“The government needs to take the bull by the horns and implement an industrial-development policy … but it’s still not clear what they’re going to negotiate and accept in terms of public spending, public investment, tax reforms, monetary policy,” said Mercedes Marco Del Pont, director of the Buenos Aires-based Foundation of Research for Development.

“The support the president has received for his political and judicial reforms and human rights policy is unsustainable in the long run without economic growth.”

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