Austerity Plan Hits Poor Hardest

Government's program keeps more capital at home but also spawns vast army of unemployed. MEXICO: WIDENING THE RICH-POOR GAP

INSIDE a restaurant in the elegant San Angel section of Mexico City, afternoon diners in business suits and silk dresses finish their main courses, refresh their palates with sorbet, and then choose from a display of delectable desserts. Outside, Zenon Garc'ia just eats fire.

With his face painted like a pouting clown, Mr. Garc'ia watches the traffic light turn red. He quickly ignites two kerosene-doused torches, wades into the congested lunch-time traffic, and entertains his captive audience until seconds before the light turns green.

Then the young flame-eater, whose perfect timing betrays seven years of earning a living on the streets, hustles around to collect coins from motorists loaded with pesos.

Garc'ia is far from alone.

Even as some members of the Mexican elite add to their fortunes, the seven-year-old economic crisis here is spawning a vast army of unemployed and underemployed workers unable to survive in the formal economy.

``It's getting worse,'' says Garc'ia, describing how the competition for his intersection has intensified recently. ``Sometimes I lose heart because things don't get any better. It looks like we [street workers] will never get out of here.''

Over the past seven years, as the debt-saddled government has trimmed spending, real wages, and state-financed jobs, poverty has tightened its grip. According to the government-controlled Workers' Congress, the number of Mexicans unable to cover their basic needs rose from 30 million in 1982 to 43 million today - or about half the population.

``Poverty is no longer a marginal phenomenon in Mexico,'' says Armando Bartra, an economist specializing in rural development. ``It's a structural problem rooted in the government's very model of development.''

President Carlos Salinas de Gortari has formed a special commission to attack ``extreme poverty.'' And when he unveiled the six year National Development Plan three weeks ago, he vowed to improve living standards. ``Modernization is opposed to privilege and exemption,'' he said. ``It is also opposed to the conditions of extreme poverty that make freedom and opportunity futile.''

For the moment, however, the government's economic stabilization program - which Mr. Salinas shaped as budget minister in the previous administration - is widening the gap between rich and poor. On Sunday President Salinas signed a pact extending the program until March 1990, ensuring that wages, prices, and the peso would remain stable.

According to a 1985 study done by the National Institute of Statistics, Geography, and Information, the richest 10 percent of all Mexican families enjoyed more income than the bottom 67 percent combined. Economists say that the tight-fisted stabilization program initiated in 1987 has only deepened those divisions.

Speculative investors have been able to milk profits from the booming stock market, an over-valued peso, and high interest rates that pay the equivalent of 35 percent a year. Meanwhile, the government diverts nearly 30 percent of its Gross National Product servicing its two debts - 6.4 percent on its $100 billion foreign debt and 23.4 percent on the $50 billion internal debt created mainly by those soaring interest rates.

``The internal debt takes away money that the government could have used to help further justice and social equality,'' says Carlos Tello, a former finance minister who now heads the National Solidarity Program to eradicate extreme poverty. ``Who does it benefit? The holders of treasury bills.'' He adds: ``The profits are highly concentrated in a few hands.''

Struggling to finance its debts and stifle inflation, the government cut public spending by 32 percent between 1982 and 1988. Debt payments were made. Bloated state-run industries were trimmed. And inflation fell from 15 percent a month in January 1988 to below 2 percent a month today.

But most Mexicans have been hit hard.

Spending on public education and health were cut in half between 1982 and 1988. Wages also fell in real terms by 50 percent. Most damaging of all, however, was the economy's failure to create enough jobs for all the 1 million-plus new job applicants who entered the market each year. The government recently acknowledged that 5 million job-seekers have been left empty-handed over the past six years.

``Traditionally, job creation has been the most useful instrument for correcting or diminishing massive inequalities,'' says political scientist Jorge Castaneda. ``But if instead of creating jobs, you have created a five-million job deficit, then inequality is being locked in for the future.''

Despite the bleak economic picture, Mexico has not exploded. Many Mexicans have relieved the pressure by immigrating to the United States. Others have found refuge in extended families. But millions have found another escape valve: the informal economy.

According to notoriously low government statistics, the informal economy rose from 1.1 percent in 1982 to 14.3 percent today. The National Chamber of Commerce estimates that there are 10,828 informal ``businesses,'' nearly as many as legally registered businesses. Some economists even contend that the informal economy accounts for over 40 percent of Mexico's GNP.

Zenon Garc'ia wouldn't doubt it.

The flame-eater says he has no desire for any other job. Last month, he worked a few days as a brick-mason's apprentice, but earned only $3.50 a day. So despite the occasional mouth burns, he has returned to his street corner. While he can't afford even an appetizer at the exclusive restaurant behind him, Garc'ia can at least buy enough tortillas and beans for his wife and children.

Narrowing the gap between rich and poor is not easy. Businessmen and government officials warn that increased public spending would lead to renewed inflation, which victimizes the poor.

``If you spend more than you earn, then there'll be more inflation and all the Robin-Hood efforts will be destroyed,'' says Claudio X. Gonzalez, a leading businessman and special adviser to Salinas. ``Obviously you have to have a large social content, but not too much to spark inflation again.''

Mr. Tello, the former finance minister, argues that substantial public spending - if well-financed and directed - is indispensable.

``If Mexico grows at 4.5 percent without any policy of distribution, it would take 50 years for the trickle-down effect to help most of the population satisfy its basic needs,'' says Tello. ``On the other extreme, if Mexico aimed its 4.5 percent increase alone to combat poverty, the problem could be solved in just five years.''

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