Headline: Economy's Dive Dazes Once Giddy Argentina

Source: New York Times, 1 October 2001

URL: http://www.nytimes.com/2001/09/30/international/americas/30ARGE.html

BUENOS AIRES, Sept. 29 — Eduardo S. Elsztain, a prominent real estate investor, got out of his chair and danced a little jig on the Persian rug in his office the other day as he recalled the buoyant business climate here in the early 1990's. "What was the feeling?" he asked as he did a cheerful shuffle. "Greed," he answered with a quick skip. "People didn't look, they bought. Now, they don't look, they sell."

These days, Mr. Elsztain, like most Argentines, doesn't have much to dance about. His primary international partner, George Soros — who sank more than $70 million into the country in the mid-1990's as he played tennis with then President Carlos Saúl Menem — took his profits and bailed out of Argentina in 1998, leaving a small fraction of his investments behind.

Many international financiers have followed suit over the last three years of a deepening recession, sending the Merval stock index on a steep ride south — off more than 50 percent in the last eight months alone — to levels not seen since 1991.

The dizzying turnaround, which extends well beyond the stock market, has left Argentines to wonder what has happened to the promised benefits of a globalized economy. A decade ago, Argentina was the darling of the financial world when it privatized bureaucracies, cut red tape and pegged the value of the peso to the dollar. This country of melancholy tangos and frustrated European pretenses was supposed to have turned a corner on its past days of instability, hyperinflation and uncompetitive industries.

Today the ebullience that accompanied the burst of glittering shopping malls, modern industrial parks and banks flush with money is gone. Political and social unrest is rising, and perhaps dangerously so.

The shopping centers are now full of going-out-of-business signs. The banks can barely collect on their loans. Almost one in five workers is out of a job. And money is so hard to find that nearly half a million people buy food and clothes in barter clubs.

Things appear to be only growing worse. The most recent economic data, for August, showed near collapse: construction activity slumped 11 percent from a year before, industrial production nearly 6 percent, and shopping mall sales more than 16 percent.

People's confidence has eroded further since the terrorist attacks in the United States on Sept. 11, as the prospect of a global recession looms ever larger. The economy minister, Domingo Cavallo, publicly admits that his prescriptions — assorted tariff hikes, tax reforms and subsidies for exporters — have so far failed. Opinion polls show approval ratings for President Fernando de la Rúa in the single digits.

The gloom is such that a prominent political talk show recently opened with the question: "Is this a country committing suicide?"

Some mark the decline from the boom days of the 1990's themselves, when the economy grew by 43 percent but the government ignored economic fundamentals. Federal agencies were privatized, but few provisions were made for tens of thousands thrown out of work. Public monopolies were replaced by private ones, leaving high utility and transport costs. Federal spending ballooned more than 90 percent, causing deficits that raised interest rates to exorbitant levels. Some economists say that pegging the currency to the dollar gave the country a false sense of stability, ending years of hyperinflation but allowing the government to put off hard decisions about cutting spending, fraud and burdensome taxes.

A devaluation during the growth years might have boosted exports by making them cheaper, without doing much harm. But having delayed the step for a decade, a devaluation now, in the midst of declining revenues, would only cause more bankruptcies and unemployment. Short on credit, the government has finally begun to reduce spending — slashing salaries and pensions — but at a time when the economy needs a stimulus.

Even a new $8 billion bailout announced by the International Monetary Fund in August has not alleviated fears that Argentina might yet default on its $130 billion debt, a concern that has helped send interest rates soaring.

The unfulfilled dreams are all in evidence in Avellaneda, a gritty working-class port city of 350,000 people next door to Buenos Aires where horse-drawn carts are making a comeback among unemployed garbage-pickers, along with strident murals showing Evita Perón mobilizing the masses.

"We are living day by day," said Higinio Bruno Ridolfi, the chief of Micro, a producer of cylinders and valves for the auto and metallurgy industries. "I have no idea what is going to happen."

Micro, of course, is not alone. Telmec S.A., a family-owned producer of precision pumps for textile mills, invested $3 million in upgraded equipment in the 1990's. Today its domestic market has shrunk to almost nothing as Argentine textile makers lose out to cheaper Brazilian imports, and factories in Europe produce similar equipment more cheaply.

The company has managed to limit its layoffs, but management has been forced to take deep salary cuts. "Forget vacations, or a new car," said its president, Nilda I. Brovida. "Forget remodeling the house. Forget middle class life as we knew it."

Such dissatisfaction is fueling the kinds of political and social disturbances to which this country thought it had grown immune. Cycles of instability and military coups between 1930 and 1983 have left Argentines a cautious lot, but unrest continues to brew.

Labor unions have mounted half a dozen national strikes in the last two years. This week, several people were injured in protests in the poor provinces of Entre Rios and Jujuy, when mobs marched on supermarkets demanding food and the police fired rubber bullets on state workers demanding back pay.

Candidates on Mr. de la Rúa's coalition ticket in the Oct. 14 congressional elections are running against the government's policies. One congresswoman from his Radical Party, Elisa Carrió, has broken away and formed a new party for dissidents and disaffected of every political stripe, called Alternative for a Republic of Equals. In normal times, Ms. Carrió, 44, would probably be a marginal figure. She wears a giant cross around her neck, tends to finger rosary beads on the campaign stump, and breaks into tears when discussing poverty. She publicly accuses Mr. Cavallo of money laundering and calls Mr. de la Rúa a mafia accomplice.

But polls show her to be the country's fastest rising politician, and she has mustered the beginnings of a presidential campaign, drawing crowds of cheering supporters at political rallies that more resemble revival meetings. "The money you don't have in your wallets was robbed by particular Argentines," she told a crowd in the depressed oil town of Cutral-Có, in the poor province of Neuquén. "And that is an injustice that must be corrected to form a new republic."

A political backlash is gathering with particular intensity in provinces like Neuquén, where the privatizations of the railroads and the national oil company produced large layoffs. In early September, thousands of residents of Zapala blockaded several roads cutting through the windy, arid Patagonian steppe for a week until the governor granted them a $2.7 million development fund for small industry.

Their success led the people of Picún Leufú, a depressed agricultural town nearby, to stage their own blockade on two highways with rusty old cars painted with a slogan coined during the Spanish Civil War — "No pasarán" — "They will not pass." The governor has so far refused to negotiate, but more towns are threatening to follow suit and throttle natural gas transport to Chile.

So far, the rebellions are local and lack coherence. Not even their leaders seem to know where they are headed. Eduardo Enrique Rubio, 35, a radio reporter who led the recent Zapala road blockades, said that no new idea had captured the Argentine imagination, at least not yet.

"Inevitably, something new is going to emerge," he said. He found a metaphor in the Argentine card game trucco, in which players can lie about the cards in their hands. "Argentines need to remix the deck, change the rules and change the seating arrangement of the players," he said. "But first Argentines need to want to play."

-- Andre Weltman (aweltman@state.pa.us), October 01, 2001