Life in Argentina's free-fall economy

How three families in this once-rich country are dealing with the financial crisis

The gentle jingle-jangle of a thousand keys barely wafts to the plaza's edge in central Buenos Aires. But the ire behind the gesture is thunderous.

"It's the corruption and greed of the entire political class, thinking only of its own pocket, that has sunk us," says Norma Trezza, shaking the keys to her home and a small plastic-bag factory - the family patrimony being tossed in Argentina's financial maelstrom.

The anger represented by clinking keys of Mrs. Trezza and other families in Argentina also carries a profound message to the far corners of Latin America and beyond. The crisis here comes at a time when many developing nations are questioning whether the international models of free-market economics and representative democracy promoted by the United States and Western Europe will work for them.

For Argentina, the questioning is especially sharp, because it comes from amid poverty where once there was wealth.

Less than a century ago, Argentina was more prosperous than Spain, Italy, or even France. Today, 4 in 10 Argentines live in poverty, and a generation of 20-somethings are trying to catch the next plane for the European homelands of their great-grandparents.

Compelled for the first time in her life to take public action, Mrs. Trezza says, "the mentality of the whole country has to change. We have to mature as a people and take responsibility for the future. We left a decade of big change to the politicians," she adds, "and look where it got us."

Since public protests began on Dec. 19 - in reaction to government restrictions on the public's access to its own cash and savings - Argentina has been through four presidents, before settling, grudgingly, on Eduardo Duhalde. The government is bankrupt, the banks fear deposit runs when controls ease, and the peso, after a decade of equal value with the dollar, has lost more than half its value.

The country waits on edge as the national currency begins a full free float today. How the peso fares will be one clue to prospects for the government's initial economic reforms announced last week, and to public confidence in Argentina's future.

Finance ministers from the Group of Seven industrialized countries (Britain, Canada, France, Germany, Italy, Japan, and the United States) said on Saturday that Argentina was moving in the right direction. But there was no offer of immediate help for Latin America's third-largest economy.

Argentine Economy Minister Jorge Remes Lenicov is scheduled to fly to Washington tomorrow for talks with US and International Monetary Fund officials.

But most Argentines, like Mrs. Trezza, have concluded that their elected leaders are too corrupt, inept, inefficient, and spendthrift, to be trusted any longer.

The pot-clanging, key-shaking, and food riots of recent weeks reflect the stirring of civil disobedience and a deep dissatisfaction with their leadership. This could portend more chaos as the government seeks a path to economic stability. Or, as the spontaneous neighborhood councils sprouting up in middle-class neighborhoods suggest, the country may be witnessing the first tender shoots of grass-roots political activism.

"We're living ... a good lesson for Latin America and other regions where democracies are still being strengthened," says Roberto Bouzas, a political analyst at the Latin American Faculty for Social Sciences in Buenos Aires. "The message is that people have a limit to the incompetence and corruption of the political class."

In her own small way, that is the message Norma Trezza is sending as she marches through the streets of Buenos Aires, jangling her keys. And in a sense, the business fortunes of her family mirror the trajectory of Argentina in recent years.

In 1973, Mrs. Trezza (it's not unusual for Argentine women to keep their maiden names) and her husband, Jorge Guichané, took their meager savings, grade-school educations, and a solid faith in the future, and invested in a small plastic-bag machine. Both kept working their day jobs, he in a truck factory, she at an entry-level position in the local government. None of their three children were born yet, but even as babies came along, the couple pushed ahead with their dream, working nights and weekends. "We began making very simple bags we could produce at home after work, but it was a start," says Trezza, a small woman who favors fashionably fitted jeans and T-shirts during the workday.

As their little enterprise slowly grew in the 1970s, they saw the return of Juan Perón to the presidency, the rise to power of Perón's second wife, Isabel, and a military coup that ousted her.

During the 1980s, despite the Falklands War with Britain, and 3,000 percent inflation that triggered looting and food riots, the bagmaking business endured, and even prospered. Mr. Guichané was able to leave his other job to make bags full time. Trezza did the same, and soon the couple had a bag factory in Lugano, a Buenos Aires neighborhood with street after street of small manufacturing companies.

By the 1990s, the Guichanés' factory had grown to 20 employees, and had exchanged the original manual machines for several automated ones. The country was on a roll. An open-market economy racked up a 50 percent growth rate until late in the decade.

When a nearby salesroom came up for sale, the Guichanés borrowed $138,000 to buy it - with the peso equal in value to the US dollar - by putting their home up as a loan guarantee.

When Argentina's recession hit four years ago, bag sales began to ebb, and the Guichanés workforce dropped to 10 employees.

But the biggest blow came last month, when a newly installed President Duhalde, inheriting empty government coffers and a banking system with nothing near the dollars or dollar-equivalent pesos Argentines had put in savings, declared the end of convertibility. The peso was officially devalued to $1.40 to the dollar, the parallel market quickly taking the peso to less than 2 for 1.

Argentines were stunned. They generally earn in pesos, but 80 percent of their debt is in dollars. Suddenly, the difference matters.

People who had deposited dollars in savings wanted dollars back, but the government said there were none. They would have to accept pesos - but when they will gain access to their money is still being decided.

The government also initially said that dollar loans over $100,000 would not be honored at 1 for 1. That meant the Guichané family, whose salesroom loan was to be paid off in 2003, would have faced additional years of payments - at a time when business continues to fall. The nightmare of losing everything, home and factory now looks quite real.

With the country at a near economic standstill, many people already on short fuses have done more than jangle keys to express their anger. A group of protesters torched a congresswoman's house and car. A group of lawmakers meeting in a cafe were jeered and threatened by passersby until they retreated to the safety of the Congress. A former Supreme Court justice was reportedly surrounded and heckled in an upscale shopping mall until police could evacuate him. And - in a stunning commentary on a country once known better than the American Midwest as the world's breadbasket - armies of the poor have invaded suburban markets to pillaged for food.

A nation of people on a short fuse

Twenty-eight Argentines have died, mostly the victims of police repression, since protests began Dec. 19.

The government has since announced that all loans will be "pesofied" on an equal basis, but street protests continue. And the Guichanésremain vigilant.

"We've crossed one hurdle to confront others," says Trezza, with little relief in her voice. "There's talk of indexing loans to inflation, and other things I don't even understand that could leave us in uncertainty."

With credit frozen and foreign suppliers shutting off supplies, many businesses have closed.

"The whole country has stopped," says Guichané, as he drives through the once-buzzing manufacturing district near his factory, now eerily quiet. "That was a cookie plant, there they made paper plates, that one had something to do with textiles," he says pointing right and left. Almost all are now closed and carry for-sale or for-lease signs.

With their country on its knees, Argentines could still heed the siren of a blame-it-on-the-foreigners populism. They have turned to patriarchal saviors in the past when uncertainty and economic decline threatened.

Juan Perón - who ruled with his famous wife, Evita, for a decade after World War II by shutting out the world and coopting the masses of urban and rural poor - is the best-known example of this brand of leadership. Argentina's largest political party still carries Perón's name unofficially and displays vestiges of the Peronist idea of Argentines more as subjects than citizens.

President Duhalde is a Peronist whose populist rhetoric and appointment of his wife "Chiche" to oversee social programs have reminded many of the original Perón. But with the country desperate for international funding to survive, the path the government will take remains unclear.

Back at the salesroom, Guichané insists that "plastics has a future, that's not the problem," offering a post-modern variation of the famous line from "The Graduate." "It's this government that could do us in."

He pushes a hand through his gray hair and pulls an electricity bill out of a stack of unpaid invoices: 330 pesos for energy consumed, total bill 962 pesos with taxes and charges rolled in. Then a water bill calculated not on consumption - the factory uses very little - but on the business's square footage. "That's just an example of how we in Argentina got where we are," he says.

The political failures behind Argentina's collapse are many, but the central problem that has left the country bankrupt only a half-decade after achieving international "model country" status is government spending, says Felipe Noguera, a political consultant here.

"The 90s were a decade of huge inflows of cash, but empty coffers and a crushing debt" - $142 billion - "are what the government has to show for it," Mr. Noguera says.

As the 80s' hyperinflation was mastered and economic growth zoomed higher, tax revenues soared. Argentina also carried out one of the world's largest privatization plans, bringing in billions of dollars. With the country seemingly doing so well, private and public international lenders were happy to join what is now simply called "la fiesta" - the party.

But as the Argentine economy surged, government spending doubled. And with weak checks and balances, no regulatory agencies to accompany the privatizations, and a civil society with little means to ensure accountability, "la fiesta" benefitted only a few, and poverty grew.

Thomas Scheetz, director of the small watchdog group Citizen Power, says most Argentines know the story of a $600 million fund established for the Province of Buenos Aires in the mid-1990s when President Duhalde was governor. Among its goals was to solve severe drainage problems.

"It's emblematic of the mess we're in," Mr. Scheetz says. "The money was spent, it's gone, but none of the infrastructure work was ever done, and recently we had flooding that wiped out crops and farm incomes that should have been safe with the envisioned project," he says. "Now people are demanding to know where the money went."

Like many Argentines, Guichané knows about the public works fund, which he calls the tip of the iceberg. What worries him most is that a government he completely distrusts could end up making him lose livelihood and house.

"It's why we're demonstrating in the streets," he says. Argentina is a wealthy country "that hasn't known how to turn that to the benefit of the majority," he adds. I hope that with this hard hit, we can change that."

But the Guichané children are less sanguine. Daughter Ana Laura, an architecture student, says she is tempted when her friends discuss their dreams of leaving Argentina for Spain, Italy, the US. One recent poll showed that almost half of those surveyed said they would leave Argentina if they could.

"Sure, we're with our parents in this. I go to the marches, too," she says. "But we have even less hope in the future than they do."

Younger brother Gonzalo, who left school because he saw no benefit from it, says he's ready to "fight" for the only future he sees for himself: the family business. But in order to succeed, "Everything about Argentina - the way the politics and economic system are run - has to change," he says. "We Argentines have learned we can't expect anyone to do these things for us," he adds, "I just don't know if we can change things ourselves."

New reason for grass-roots activism

Despite such doubts, the fact that Argentines are in the streets, attending neighborhood assemblies to fight unpopular decrees, and loading the Internet with protest ideas and calls to action, has some observers cautiously optimistic that the civil society a post-crash Argentina needs is in the formative stages.

"We're seeing signs of what could be important changes: The search for a messiah is broken, the middle class wants nothing of traditional politics, a country that has traditionally shown very little solidarity is expressing more community," says Manuel Mora y Araujo, a Buenos Aires public opinion analyst. "All of that could change again and be forgotten, but at least these are the seeds of what Argentina really needs, which is to become a country of institutions."

'Mobility machine' stalls

Eva de Golluscio, a spry grandmother who never succumbed to the attractions of "Don Juan Domingo" - Juan Perón - couldn't agree more. Now a retired teacher living comfortably off her late husband's pension, Mrs. de Golluscio says it was the twin institutions of good public education and hard work that made Argentina great. She recalls the old expression favored by poor immigrants escaping the poverty of Europe in the early 20th century: "In Argentina, you spit on the ground, and a flower grows and blooms."

Many of her and her husband's relatives were examples of the great social mobility machine that Argentina became for millions of immigrants who were either uneducated or came with a simple trade. "My grandmother always told me that our relatives came with one idea: to keep their sons out of war, have a house, and work so the children could study."

For Golluscio and millions of others, the formula worked. There were setbacks. Golluscio's own parents lost a business in the 1930 Depression. But within a generation of many immigrants' arrival, children grew up to become professionals. Golluscio's four children are all professionals, mostly in education - but that hasn't guaranteed them better times, she laments.

"They get by on small salaries, and this crisis leaves everybody with doubts about the future," she says.

For Golluscio's family, the mobility machine has stalled.

Daughter Lucía Golluscio is a university linguist, and holds a post with a prestigious national research institute - an institute she says faces gutting as the government deals out more cutbacks.

Argentina's vaunted public higher-education system - still free for top achievers like her son - is under attack. Cutbacks have sent many students who can afford it to more stable private colleges. Budgetary uncertainty opens up the possibility of a broad teachers strike when classes resume in March.

Mrs. Golluscio's husband, Pablo Garaño, is a psychologist with a job auditing government health programs. In December his salary was cut by 30 percent, so together they bring in about 3,000 pesos a month (since the devaluation, about US$2,000) for a family of five.

Golluscio says the country changed dramatically under President Carlos Menem, who came into office a Peronist in 1989 but engineered the privatizations and what she calls the shrinkage of the state - despite ballooning spending - that typified the 1990s.

The past decade taught Argentines a different ethic, she says, one they are suffering from today: "Hard work lost its currency under Menem. It was having money and who you knew that paid."

Perusing the newspaper in the Garaño family's neat but small apartment in a former industrial zone of the city, her husband points out an article that details Argentina's shift from a middle-class country to one with a social structure more closely mirroring other Latin American countries - a small but very wealthy upper class and a large mass of poor, with few in the middle.

In fact, over the past quarter century, a country that once stood apart from its poorer Latin neighbors has witnessed a debilitating rise in poverty. In 1975, notes Claudio Lozano, an economist with the Argentine Labor Confederation, about 10 percent of a population of 22 million lived in poverty. Today, about 40 percent of Argentina's 36 million citizens are poor.

Mr. Lozano blames what he calls a "strategy of inequality," which he says involved lowering wages and building up a public debt that needs servicing, to the financial benefit of a few. Corruption and inefficiency played a role, he says, but so has an international economic strategy that doomed Argentina's higher wages and broader social benefits compared with its poorer neighbors.

It's an argument that receives partial support in the Garaño household. "I agree when Duhalde says this [free-market] economic model ruined a people in 25 years," Mr. Garaño says. "I just don't think he is the one to do anything about it."

But his son, Santiago, a tall, young man with a quick smile, sees reason for hope. The worst thing for him is seeing his friends' parents who have no job and no hope, sinking into despair. What encourages him, on the other hand, is the public activism he sees blooming in the crisis.

"What's really surprised me is that people who were never interested in politics before, now they are," he says. More optimistic than his mother, he says his solution in the face of an uncertain future is to have a project: He and a friend are writing a book about a Buenos Aires high school that had 100 of its students "disappeared" by authorities during the last military dictatorship.

A planned backpacking vacation with friends to neighboring Bolivia was replaced by a domestic trip after January's devaluation meant foreign travel was suddenly too expensive.

"Some people are looking for magical solutions, in fleeing the country or in some kind of new leader, but I don't believe in magical solutions," Santiago says. "I think you have to do things yourself."

A family barters clothes for their next meal

With a few meager fruit trees shading the packed-dirt patio they claim as their family's social center, Norma Domínguez and Almirón Gavino live close to the ground.

It's the same Argentine ground her one-time farming parents thought would yield the fruits of prosperity. Today, the bare dirt of the couple's home, many of the streets around their plot, and the open sewers that weave throughout are nothing more than a reminder of the poverty they live in.

"There should be help for the unemployed, training for new jobs, and money to keep the kids in school," says Mrs. Domínguez, seated at a table outside the two-room shack she shares with Mr. Gavino and their six children. A few folded old mattresses are evidence that, on these warm summer nights, some of the family sleeps outside. "But the way it's done," she adds, "you owe some politician your life, and I don't have confidence in anyone any more."

Having given up, Domínguez and Gavino have checked out of the traditional economy. Their one source of hope is a bartering system that has spread through an impoverished Argentina. But while it keeps the family fed for now, it offers little hope for a better future.

Raising a family in a shanty in the rough suburbs southwest of Buenos Aires has always been difficult. After the metal curtain manufacturer Gavino worked at closed three years ago, things turned desperate - but not enough for the couple to accept partisan handouts.

"I did sign up for a work program a while ago, but it was nothing but a way to get you to go to political meetings," says Gavino, a compact man whose ropy forearms attest a life of labor. The sole purpose of the meetings, as far as he could tell, was to pressure program participants to kick back half of the 200-peso monthly salary to local bosses. "I didn't go for that."

So now the couple get by through alternative channels. Gavino divides boxes of detergent into smaller amounts and sells to neighbors who can only afford a wash at a time. But it is Domínguez's involvement in a community swap market that keeps the family above water. "It's really the reason we're still eating," she says.

The swap markets have bloomed around Buenos Aires in recent years as more people have lost jobs and had to learn to live without cash.

Domínguez collects scraps of material from a friend who works at a textile factory, and with an old sewing machine fashions baby clothes. On a recent day she traded a T-shirt and shorts set for a pizza. It would be dinner.

Yet while Domínguez is so far able to feed her family, she also knows that bartering can't meet all her family's needs - like keeping her children in school. While public schools are free, required books and other supplies are not. "I know the kids can't get ahead without an education," says Gavino, who left school after seventh grade to go to work. "But where will the money come from?"

The area where Domínguez and Gavino live is the kind that erupted in December with the food riots that set off Argentina's crisis, but Domínguez says she has no faith in any kind of social action.

She has heard comments of political experts who say Argentina needs a new generation of leadership, one that avoids promising magical solutions and faces the future honestly. But Domínguez is dubious.

"Right now, I can't see any way that we have a future," she says. It's a statement that leaves her children silent.

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