The Miami Herald
November 10, 2001

Argentina sinks into squalor as financial crisis deepens


 BUENOS AIRES -- As Argentina struggles to pay its debts, salaries shrink, unemployment soars and misery becomes a constant for its citizens.

 Garbage is piling up around Buenos Aires because city officials haven't paid the trash collectors.

 Public health workers have taken to the airwaves with complaints about shortages for essential hospital supplies, from alcohol to sutures.

 Argentines hoping to leave for Italy or Spain wait hours in long lines, which have not diminished since summer. Passports couldn't be issued for several weeks because the Foreign Ministry didn't have enough money to buy paper.

 Families have stopped paying their bills and cut back on spending.

 ``Nobody can pay their monthly maintenance,'' said Liliana Sanchez, a retired wholesaler. ``I live in a building with 11 apartments. This month, only six could pay their maintenance fee.''

 Sanchez has dipped into her savings to survive since retirement. ``I just don't know what is going to happen.''

 As average salaries shrink -- government workers saw their paychecks fall by 13 percent in the latest government austerity plan, named Zero Deficit -- some costs just don't go down. Utility rates are sky high.

 Local phone charges, about $30 a month in the United States, average several hundred dollars a month in Argentina because users are charged for each minute of local calls. For a small apartment, the average gas heating bill is $140 in winter, electricity another $150, while water charges are $75. The freeway toll from downtown Buenos Aires to the airport is more than $3 on the private -- and sole -- freeway.

 On paper, Argentines are the richest individuals in Latin America, with $7,000 in annual per capita income. But the country is undergoing a process of pauperization, with more than 12 million of the 35 million people classified as poor. At least two million have been added to the ranks of the poor in the last year.


 Forty-one months of recession and unemployment edging toward 18 percent of the workforce have accelerated the spread of shantytowns on the outskirts of Buenos Aires and the presence of beggars along the elegant streets of the capital.

 Financial analysts call the economic problems ``terminal agony,'' since a series of austerity programs and loan packages from international lenders have not brought
 economic recuperation.

 But in contrast to even 11 months ago, some Argentine industrialists have joined a handful of economists in calling for a devaluation to end the fiction that an Argentine peso has the purchasing power of $1.

 ``It should become clear now that convertibility is the culprit [of the economic problems].'' wrote Jorge Born, former president of the grain giant Bunge & Born, in The Buenos Aires Herald two weeks ago. ``Since the 1=1 dollar peg has to come to an end . . . then surely the time to do it is when there are still reserves to control the process.''

 Argentine authorities have pledged to faithfully pay their debts, but right now the federal government hasn't paid provinces some $800 million in revenue sharing, has no money to service its foreign debt and owes back pay to federal employees, pension checks and bills to suppliers and contractors.

 Ten days ago, the government issued an ultimatum to domestic holders of bonds that they must swap or face full-fledged default. Swapping with foreign bondholders is next.

 Despite the fact that the federal government has promised it will not devalue the peso, federal and provincial authorities have found a way to keep their economy afloat -- printing new bonds that can be used as cash.


 Call it scrip or play money, but the provincial government of Buenos Aires is now partially paying its employees and its bills in what are called Patacones, while the federal government has issued Lecops -- Letters of Commercial Obligation -- to pay its expenses and debts.

 These new bonds break the rule of the convertibility plan, as the exchange rate program is called, which states that the government can only issue pesos when they are backed by dollars in reserves.

 But they seem readily accepted at stores and restaurants.

 ``A No. 4 McRoyal -- that's 4.50 in pesos and 4.50 in Patacones,'' said Paola Protti, working the lunch hour at McDonald's in the Village Recoleta shopping mall.

 Like the Village Cineplex or stores in the nearby upscale Patio Bullrich shopping plaza, McDonald's is accepting this new form of money issued by the bankrupt
 government of the Province of Buenos Aires, although at Bullrich, you must exchange the IOUs for cash certificates.

 ``More people are using Patacones now,'' Protti said. ``Since nobody has any cash, a ton are.''


 Once the star pupil of the International Monetary Fund, Argentina went further than any other Latin American country in privatization, deregulation and trade liberalization.

 But opposition to the measures has grown with the persistence of the recession.

 Warning that competition was driving them out of business, Argentine truck drivers blocked the borders to Chilean and Brazilian trucks this week.

 In August, the government implemented a zero-deficit plan, a Draconian measure under which the government spends only what it collects in taxes. Because of the
 recession, the government collects less in taxes each month and the declining expenditures imply further cuts, which in turn deepen the recession.

 On Thursday, opposition governors refused to sign a debt accord with federal authorities, weakening President Fernando de la Rúa's position as he met with bankers in New York Friday, prior to meeting President Bush Sunday to ask for new funds from multilateral lenders.


 Minister of the Economy Domingo Cavallo insists that the provinces must join in the austerity. Provincial governors say they cannot pay their bills because the federal
 treasury owes them millions.

 De la Rúa wants Bush's support to convince the IMF to advance the disbursement of $1.2 billion so Argentina doesn't default on foreign bond interest payments before the end of 2001.

 The Argentine government also needs fresh funds from institutions like the World Bank to offer foreign bondholders a new guarantee that would make a debt swap
                                    © 2001