San Diego Union Tribune

November 3, 2005

Economic summit set in boom-bust world of Argentina

By Finlay Lewis

BUENOS AIRES, Argentina – On the concrete floor of an unlit recycling center in the heart of the capital, hundreds of empty champagne and wine bottles reflect the country's rapid recovery from a deep economic depression that struck five years ago.

But Héctor Cortés, who sifts the bottles and other recyclables to provide for his family of eight, is a reminder that the miraculous rebound has left many in poverty.

Cortés, 42, is part of an Argentina that President Bush will not see when he arrives today at the seaside resort Mar del Plata about 250 miles from Buenos Aires for a two-day summit of the Western Hemisphere's 34 democracies. But it is this Argentinian reality that will be on the minds – and the agendas – of many of the Latin American leaders who will sit down with Bush in the next few days.

Argentina's boom-bust swings and its dramatic contrast between rich and poor provide a fitting backdrop for the Summit of the Americas, which is dedicated to creating economic growth and stability more evenly across Latin America.

Graphic: Argentina facts
The country's rapid resurgence from its deep depression has left the gap between the haves and have-nots wider than ever, as well-heeled shoppers, many dressed in the latest European fashions, throng the chic boutiques of Patio Bullrich or along Avenue Alvear. The expensive restaurants of Puerto Madero, catering to Buenos Aires' monied class, flourish as they send their empty liquor bottles off to be recycled by workers like Cortés.

Not far away, junked cars confiscated by the police sit stacked atop one another along a railroad track near Cortés' workplace. Slum housing lines a pothole-filled road that leads to the broad boulevards and magnificent architecture that celebrate Argentina's past as a South American powerhouse.

Although the country's economy is growing at a robust annual rate of about 9 percent, the government is facing a poverty rate of about 38.5 percent. That's considerable improvement over the 58 percent registered three years ago, at the peak of the fiscal crisis, but the current rate is still twice as high as it was in 1994, according to a World Bank Study.

Economists, businessmen and policy-makers here agree that Argentina's efforts to achieve stable, long-term growth and a more equitable society remain in doubt.

Why: The leaders of 34 Western Hemisphere countries will discuss free trade and ways to eradicate poverty.

What's next: After the summit, President Bush heads to Brazil on Saturday, Panama on Sunday, and returns to the United States on Monday evening.
"There is still a lot of work to be done," said Martín Redrado, head of the Central Bank of Argentina. "(The country) has had, in a nutshell, a history of overspending and overindebtedness. . . . When you've had the implosion that you've had in Argentina, it takes a decade at least to recover. . . . There are good steps made in the right direction but a lot of work to build solid institutions (to avoid) this back and forth that Argentina has had for the last 30 years."

More fortunate residents of this elegant city might once again be clinking glasses, but many are still struggling to make ends meet. To that end, legions are joining the ranks of the cartoneros – people who collect cartons or cardboard to sell to recyclers. They make as much as $280 a month.

"I had no choice," Cortés said as he surveyed the rubbish linking both ends of the recycling shed. "My family had to eat."

His plight is far from unique.

Many cartoneros come into Buenos Aires at night from the slums to collect the leavings in wealthy neighborhoods, a reminder of the economic forces that a few years ago decimated the middle class, forcing many into poverty.

In some respects, the country, with some of the world's most fertile farmland, has been successful in ridding itself of some ghosts that have haunted it for much of the past 80 years.

Virtually no political expert here thinks the military will snatch power from civilian hands, as has happened more than once in recent history.

And while Argentina might not have conquered the vagaries of the business cycle, it seems unlikely that the country will revisit the hyperinflation of mid-1989, when prices were going up 100 percent a month.

Then-President Carlos Menem took a key step toward recovery in 1991 when he pegged the peso at a 1-to-1 rate to the dollar. By anchoring the Argentine currency to the stable dollar, embracing free trade and by placing a tight lid on government spending, the government reduced inflation to 4 percent by 1994. It also stimulated a flood of foreign investment capital.

But victory over inflation came at a significant cost.

Buffeted later that decade by economic turbulence in Mexico, Asia and Russia, the peso weakened, triggering a run on Argentina's dollar reserves as the government struggled to meet its obligation to preserve a one-to-one relationship between the currencies.

The nation's economy began to shrink, hitting bottom in 2002, when it contracted by nearly 11 percent, according to the International Monetary Fund. The unemployment and poverty rates skyrocketed.

The government responded by devaluing the peso in a way that wiped out the life savings of much of the middle class, forced a massive flight of capital and led to a sovereign default that left many creditors holding the bag. Bloody riots erupted in the capital and elsewhere, pushing the country to the brink of collapse.

Lisandro Barry, Argentina's finance minister during the height of the crisis, winced when asked to recall that moment.

"It was like trying to land an airplane in the middle of a volcano – while it was erupting," Barry said.

One of the victims was Cortés, who lost his job selling fruit and vegetables at Buenos Aires' central market when the crash wiped out the stall's owner. Cortés became one of an estimated 40,000 cartoneros rifling through the unsorted garbage of upscale neighborhoods until a friend introduced him to a gritty, storefront cooperative – El Ceibo – that runs the sorting operation at the shed.

"This was a massive crisis with very large social implications," said Felipe de la Balze, an economist and entrepreneur.

That was underscored by the World Bank study that declared that "few countries in the world have seen such a rapid rise in poverty."

The recovery has been a political windfall for President Nestor Kirchner, who was elected in 2003 with only 22 percent of the vote as a Peronista – a reference to the legacy of strongman Juan Perón, who came to power in 1946 and whose legacy still overshadows Argentine politics.

Kirchner took office just as the economy was set to register two consecutive years of 9 percent growth. His position appears to have been buttressed by his condemnations of an abusive military junta that seized power in 1976, caused more than 10,000 opponents to disappear and then waged war against Britain in a vain attempt to recover the Falkland Islands.

In midterm elections last month, Kirchner's faction tripled its strength in the nation's Congress.

But the election underscores Argentina's failure in recent years to develop a stable, competitive political party system. While there are significant divisions within the Peronist movement, the battle over ideas, programs and a governing philosophy has not yet been fully developed.

Moreover, the years of intermittent crises and military takeovers appear to have taken a psychic toll.

Manuel Mora y Araujo, a pollster, said, "There is a feeling that a crisis is always possible. It can come up again and again. It's kind of Argentina's fate."

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