Inflation Down but Many Lose Jobs in Argentina
Economic growth has boosted living standards, but the privatization of utilities and other public holdings has resulted in major layoffs
FLORENCIO VARELA, ARGENTINA — ADRIAN VASCALVA sits in a run-down park with his wife and baby boy and makes a candid assessment of his prospects in Argentina. The country's economic house is in much better order than a few years ago, though for average workers the results have been mixed.
''Life is very difficult, and I think it will only get worse before it gets better,'' says the young meat cutter who has always lived in Florencio Varela, a transition town between urban Buenos Aires and Argentina's wide, flat Pampa. Unemployed for six months before landing the $300-a-month slaughterhouse job eight months ago, Mr. Vascalva says he's grateful for the position even though it carries no benefits or security.
''The older guys are still under the old system where they get paid even if they're laid off, but I get paid for the hours I work,'' says the young man, whose baby finger is wrapped up like a hot dog in his boy's tiny hand. ''If people eat less meat, I'm out with nothing,'' he says, adding: ''They tell us the jobs will be more secure if Argentina can sell more meat to other countries.''
Florencio Varela, called simply Varela here, is as small-town and provincial in its feel as Buenos Aires is urbane and cosmopolitan. About 20 miles south of the capital, Varela closes up for long lunches, a few horse-drawn wagons plow the streets, and dirt roads lead to poor makeshift houses on the outskirts of town.
Working families here are in the same tight situation as their counterparts in the rest of the country.
There are improvements, however: After five years of a severe economic adjustment program, inflation that reached 5,000 percent in 1989 plummeted to less than 5 percent last year. The average worker's purchasing power improved as inflation tamed. And erratic economic growth - positive one year, negative the next in the 1980s - hit 6 percent or more from 1991 to '94.
But there's also a down side, which is what average Argentines are feeling more all the time.
Slashed work forces
The government of President Carlos Menem won its anti-inflation fight with a convertibility plan that pegs the Argentine peso to the United States dollar; one peso, one dollar. But that financial stability has depended in part on revenues from a broad sell-off of Argentine utilities and other former publicly held companies. Once privatized, those companies have slashed work forces - a significant contributing factor in Argentina's rising unemployment.
Hovering around 6 percent through the early 1990s, joblessness jumped to 12 percent last year and now stands above 14 percent. With more privatizations to come, and the country's strapped provinces now being pushed to follow the federal government's example by selling off public holdings, most economists expect unemployment to climb as high as 18 percent before it starts coming down.
Nation is in recession
An additional problem is that in the wake of the Mexican financial crash, which scared away foreign investors from much of Latin America, Argentina has slipped into recession: The government claims the year will end with an overall 3 percent growth rate, but many economists expect zero growth.
So as Argentina continues to face high annual foreign-debt payments into the next century, economists foresee more tightening from the government, which will translate to more sacrifices for the common people living in Varela.
''Privatization and deregulation of the economy were the driving forces in the first half of the decade, but the next two important challenges are the fiscal problem and health costs,'' says Roberto Cachanosky, an economist and company consultant in Buenos Aires. Noting that federal government spending doubled from $20 billion in 1990 to $40 billion last year, he says, ''That's too much.''
Mr. Cachanosky says that after a round of tax increases earlier this year - the national value-added tax was raised from 18 to 21 percent - the only option the government has to meet its international commitments while entertaining any hope of attacking joblessness is to cut spending. ''Payroll taxes and other costs related to the employee make hiring too expensive,'' he says.
But that leaves the government in a very uncomfortable bind. To cut unemployment, which President Menem has said is his top priority, the cost of employment has to come down. But that means cutting payroll taxes, among other employer costs and, as a result, cutting public spending all the more to make up for the lost revenue.
Pension costs are high
The country's health-care system, largely in the hands of trade unions, is another high cost to employers that Cachanosky says must come down - along with the cost of government-paid pensions. Three-eighths of all government spending goes to pensions, Cachanosky notes.
''So even though the individual pension [averaging $200 a month] may not sound high, that cost has got to be reduced,'' he says. ''If not, we will be forced into a devaluation.'' That is something Minister of the Economy Domingo Cavallo insists will be avoided at all costs.
Some people back in Varela are surprisingly calm about the prospect of more belt-tightening ahead. ''The end of inflation and a period of economic growth got people used to spending more, but now it's time to cut the spending and get our financial situation in order,'' says Waldo Selso, who sells sandwiches and churros on a central Varela corner. ''Both the average family and the government have been living beyond their means,'' he adds, ''but under President Menem we're learning to economize and live differently.''
The ongoing financial crisis in Argentina's provinces is an example of the ''different living'' the country is learning, some economists note.
''The federal government could have just sent a check and solved the immediate problem in Cordoba,'' says international economist Felix Pena, referring to a key Argentine province where the local government's financial bind - including an inability to pay employees - has sometimes led to violent street protests.
''Instead, the [federal] government is trying to go further in the transformation of the country, and so it is trying to force fiscal discipline,'' he adds.
Cordoba's governor, a member of the opposition Radical Civic Union party, resigned July 6 in protest of the federal government's refusal to help bail out the province.
The Cordoba government was particularly incensed at the revelation that Mr. Cavallo had intervened to stop an American bank from making Cordoba an emergency $250 million loan.
In Varela, the government's tough hand with Cordoba is winning points. ''If I run my own affairs poorly, and a rich uncle bails me out, won't I just expect him to do it again,?'' asks Mr. Selso.
Mr. Pena argues that getting government's fiscal houses in order will work in average Argentines' favor despite the hardships it may cause them, because it will make Argentina more attractive to foreign investors and a more competitive exporter.
That would help make the meat Vascalva cuts more attractive to other countries - so that, in the long run, his job at the slaughterhouse might become more secure.