Argentina Squeezes Its Middle Class

Economic reforms have cut inflation, but at what cost?

ARGENTINA, lauded as an economic model for South America, may be a success story on paper, but the country's middle class is paying a price.

Inflation has dropped from four-digit levels in the late 1980s to 8 percent this year, and Argentina has one of the highest levels of growth in Latin America.

But behind the statistics is something more difficult to measure. As the federal government has shed hundreds of thousands of workers in the past several years, through job cuts and as state-owned industries have been sold off to private investors, half of Argentina's middle class (once 40 percent of the population) slipped to the lower class, according to Hector Pessah, president of a Buenos Aires political consulting firm.

``The difference between Argentina and other third-world nations has been the power of the middle class,'' Mr. Pessah says. ``Destruction of the middle class is one of the country's big social problems. The other is the growth of the marginal - the homeless and the very poor people.''

Recent riots emphasize that the economic reforms are not working for everyone. In Santiago del Estero the most serious act of social unrest since President Carlos Saul Menem took office four years ago occurred on Dec. 16.

State workers rioted after learning that the financially troubled state government could not pay two months of back wages averaging about 300 pesos ($300) per month. Yet some judges, legislators, and other top officials were taking 10,000-pesos monthly salaries.

More than 50 people were injured when about 5,000 state employees burned and looted the governor's offices, legislative building, courthouse, and the homes of top officials.

``The economy situation is very hard, and the people of Santiago have no future. There are no other industries or businesses to turn to,'' says Graciela Fernandez Meijide, a federal congresswoman, explaining that nearly half of the workers are employed by the state government. ``And when they see the salaries of the government officials, you have a Molotov cocktail.''

Elizabeth Jelin, a socialist with the University of Buenos Aires, says the government's failure to provide a social safety net for the needy has strained the limits of the Argentine family.

``Santiago is a sign. It's a call to the government and I hope they take it seriously,'' Ms. Jelin says. ``All the international financial agreements are not coming with a human face. Even in Mexico there's a social policy that shows some concern for what's going on. Here there's no concern for the people.''

Since taking office in July 1989, Menem has won public support and the respect of the international community for his economic changes. The policies of Menem and his economic minister, Domingo Cavallo, have stabilized and opened the economy to international markets after decades of isolation.

But while the federal budget now is balanced and prices are stable, many people - from retirees to middle class workers - are suffering. The majority of the country's 35 million residents are locked out of the first-world-like shopping malls and downtown stores filled with electronic goods and stylish clothing now being imported from abroad. Workers earning the average monthly salary of 500 pesos are struggling in the capital city where a newspaper costs 80 centavos and a movie ticket is 6 pesos.

Analysts say unemployment will be especially painful without an adequate government social safety net. It has no program for aid to mothers with dependent children or a food stamp program for needy families. Government unemployment insurance is severely limited, and the burden of compensating fired workers falls to employers who balk at current labor laws requiring them to pay a month's severance for each year a fired employee works. ``The social safety net is family, and the strain of the family has come to its limit,'' Jelin says.

On Dec. 22, labor minister Enrique Rodriquez resigned because he opposed the government's failure to provide a policy of social protection as it restructured the economy. He left after the government announced a decision to cut the percentage from payroll taxes allotted to social security contributions.

Now the federal government's belt tightening has shifted to the next level - the country's provinces. Mr. Cavallo has told the provincial governments that they cannot expect to receive the same amount of federal money next year as they have in past years. Federal funds were used by many provinces to meet their expenditures. The result was a rising level of tension in the provinces, which culminated in the riots in Santiago del Estero.

Days before those riots, 7,000 workers clashed with police in La Rioja, Menem's home province. The workers took to the streets after the state government announced an austerity program that included shedding 10,000 public sector jobs. Local legislators later backed away from the program. Yet some analysts say the fact that residents in Santiago backed down after Menem sent a representative to restore order shows people support the federal government's economic reforms.

Federal trustee Juan Schiaretti, a former industry and trade secretary who worked for Cavallo, awarded a 500-pesos lump sum payment to civil workers and a 300-pesos payment to retired state workers.

``You cannot blame the federal adjustment program. The local administrations are corrupt, and people in high positions are making high salaries,'' says Daniel Artana, chief economist at Fundacion de Investigaciones Economicas Latino Americanas, a Buenos Aires economic think tank. The riot ``has an outcry against local politicians.''

But even those who support the federal government's attempts to make the provinces fiscally responsible admit the unemployment situation will get worse.

``The downsizing and the privatization will produce unemployment. The loss of jobs will get higher,'' says Manuel Moro y Araujo, a political analyst. ``The provinces don't have the money to pay for it [unemployment insurance]. I don't know if the social unrest will get bigger.''

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