ARGENTINA

The resurrection of the historic Abasto wholesale market as a gigantic mall has created the biggest, newest, boldest monument to Argentina’s economic renaissance and to the free-market revolution sweeping Latin America.

During the thriving early part of the century, the cavernous building housed a produce market that was the heart of a neighborhood of tango bars and Italian and Jewish immigrants. During the nightmarish 1970s and ‘80s, the Abasto was abandoned to the rats.

In October, a remade Abasto reopened its doors, part of a shopping mall boom here led by George Soros, the Hungarian-American billionaire. The $170-million mall, Argentina’s largest, features 200 stores, employs 3,000 people, serves 100,000 customers a day, and incorporates an amusement park and an interactive children’s museum.

The Soros investment group’s nine Argentina malls ring up sales totaling $1 billion a year. The properties have reclaimed treasures in a newly vibrant urban landscape: a former train station, a livestock market. A desolate waterfront became Puerto Madero, a chic restaurant row that symbolizes the freewheeling prosperity of the winners of a new, sometimes Darwinian economic game.

“It’s an attractive country,” said Gabriel Juejati, chief executive officer of the malls’ Alto Palermo development company. “The Argentine consumer is a great consumer. We are going in the right direction.”

After crawling out of the ruins of hyper-inflation, Argentina has become a success story. It enacted one of Latin America’s fastest and most drastic free-market revolutions. Unlike neighboring Chile, a model of liberalization that was overseen by a dictatorship, Argentina made its transformation within the constraints of democracy.

Lower Middle Class Loses Comforts

Last year alone brought $13 billion in foreign investment, contrasted with a paltry $800 million between 1983 and 1989. Inflation hovers near zero. The economy grew 7% during the first half of 1998 and has averaged 6% a year since 1991, second in the region only to Chile.

“This shows the strength of the economy,” said Secretary of Economic Programming Rogelio Frigerio. “We have one of the world’s most solid financial systems, which has allowed us to keep growing despite the global economic crisis.”

But this paragon of free-market reform has a dark side.

The 1990s lifted many people, especially university graduates, closer than ever to the U.S. and European lifestyles they traditionally sought to emulate. But the losers of the new game--the uneducated and unskilled, the suddenly redundant bureaucrats--were pushed toward hardship.

Indeed, the real, gritty Latin America starts right on the outskirts of the stately capital. The vast industrial belt of the province of Buenos Aires has suffered the most from the wrenching changes, surpassing the provinces of the nation’s interior in joblessness. In the slums of suburban Quilmes, someone has put up handwritten dark-humored signs reading “Welcome, Middle Class.”

The sardonic greeting captures the fears of the worst-hit victims of a competitive and intimidating economy, according to Father Luis Farinello, a white-bearded crusading priest who heads a charity network in Quilmes.

Many in the lower middle class are losing the comforts they had come to expect, even in the chaos of the 1980s, Farinello said.

“They used to be able to go to the beach, go out for pizza, send a son to college,” he said. “The state needed reform; it was a disaster. But this reform was very cruel, very fast, very badly done. It was done overnight.”

So even as Argentina exemplifies the best of Latin America’s conversion to free markets, it now faces the challenge of the coming decade: how to make the economy as equitable for working people as it is enticing to investors. The great debate here, as elsewhere in Latin America, focuses on the next round of reforms.

It is a measure of the size of the task that most Argentines are pessimistic. Seventy percent feel insecure economically and 80% define the economic situation as bad, according to a recent poll. Though joblessness has fallen from a peak of 18% in 1995 to the current 12.4%, unemployment and underemployment remain major worries.

Accustomed to enjoying Latin America’s highest standard of living, Argentines now worry about a growing economic inequality. A new study shows that, between May and August 1998, the monthly income of the richest 10% of the population increased while that of the poorest 10% declined.

Reform Supporters Counsel Patience

The die-hard architects of the transformation want to stay the course, arguing that the benefits of the unfinished overhaul will eventually trickle down to such areas as labor, education and health.

Legislator Domingo Cavallo, former economic minister and now an independent presidential candidate, dismisses complaints about “savage capitalism.”

“The core of the problem is the obsolescence of the many ways in which the state intervenes in the economy,” he wrote recently. “There is still a morass of regulations that benefit special lobby groups. . . . The key to guaranteeing social integration is modernizing this ‘savage state’ we endure.”

In contrast, leaders of the Alliance, a center-left opposition party with a good chance of ending the Peronist Party’s years of rule in next year’s elections, want to temper the neo-liberal model.

“The fact that poverty increases while the economy grows is alarming and is a sign that income distribution is worsening,” says Jose Luis Machinea, a top economic advisor for the Alliance.

Voters apparently want government to play a more active role in attending to social problems. But all the presidential candidates promise not to undo the fundamental policies--peso-dollar parity, open markets--that have brought about stability.

Stability is sacred here, and with good reason. When President Carlos Menem took office in 1989, he faced a tragicomic scenario: hyper-inflation, looting of supermarkets, a hapless state oil company that managed to lose money, an inert state telephone company whose thuggish workers demanded $1,000 bribes to install a telephone.

Two leaders shaped the whirlwind years that followed: Menem and Cavallo. Menem was a machine politician from the provinces, a flamboyant Peronist whose instincts and strategic skills made him an economic visionary. Cavallo was a brilliant Harvard-trained economist whose force of personality and courage made him a political powerhouse.

Together, they dismantled the state apparatus built in the 1940s by Gen. Juan Peron. Peron’s populism had ensured a remarkably comfortable lifestyle for the workers and middle class, but he and subsequent rulers squandered vast natural resources. By 1989, the country was all but broke.

First, Cavallo and Menem attacked inflation with the monetary shock treatment of currency convertibility, tying the peso to the dollar. They slashed trade and investment barriers, slashed the government payroll and privatized $30 billion worth of industries, eliminating about 180,000 jobs, many of them featherbedding.

Menem and Cavallo became stars in the eyes of the international financial and diplomatic communities. This year, Cavallo visited Russia to advise leaders on that nation’s economic crisis. Menem gets praise and billion-dollar credits from international financial institutions for the Argentine economy’s performance during the world economic turmoil of the last year.

“We are showing that if you have a well-regulated financial system, you can even commit errors in other areas but maintain enormous stability,” said Juan Luis Bour, chief economist of the Foundation for Latin American Economic Research. “Since the Asian crisis, Argentina has been a model case.”

Especially in the early 1990s, working people benefited. The demise of hyper-inflation allowed the poor to breathe and to jump into the consumer class. The number of households lacking basic necessities dropped by 35%, according to Frigerio.

Dispute Over Elimination of Jobs

As the exhilaration wore off, though, workers grew alarmed at the unprecedented surge in unemployment that resulted, at least in part, from the loss of inefficient government jobs.

“Unemployment is not a result of these [reform] policies,” Frigerio said. “Before, unemployment was hidden, disguised by public jobs. Now it is out in the open. You have to have a clear diagnosis of the causes in order to find the right solutions.”

The solutions proposed by Menem’s economic team center on reducing employer taxes and highly protective and bureaucratic labor regulations that limit employers’ ability to hire and fire. It can be cheaper here to buy a machine than hire an employee, experts say.

Nonetheless, labor leaders call such arguments a disingenuous strategy to weaken job security, which is a hallowed institution here. Unions resist short-term contracts, more flexible work rules and other measures.

Even though Argentina stands out as one of Latin America’s best-educated societies, there is little doubt that schooling separates the winners from the losers in the fast-paced, competitive new economy. Everyone agrees that schools and teachers deserve more money, but finding the funds has been a problem. And the administration has again encountered resistance from unions to a proposal to accompany salary raises with higher professional standards.

Cavallo aims his combative underdog campaign for next October’s presidential election at what he calls another big obstacle to authentic market reform: corruption. He promises to clean up a besieged justice system that he says discourages investors and is manipulated by shady, monopolistic forces.

But critics on the left say the reforms of the future will have to go beyond locking up gangsters and corrupt officials. Some assert that the dismantling of protectionism, which shielded a large but inefficient industrial sector from outside competition, went too far.

The shuttered textile factories of Quilmes were direct casualties, says Father Farinello. While needy families lined up outside one of Farinello’s soup kitchens, the priest repeated a common lament:

Why does Argentina embrace foreign products as its factories rust and its oranges rot on trees?

The government points out that service, construction and other industries have boomed, and creation of the MERCOSUR regional free-trade pact expanded markets for Argentine products in South America.

But there is a backlash against the perceived loss of economic sovereignty to far-off executives and policymakers. The International Monetary Fund’s insistence on stern fiscal remedies makes it a favorite target.

“Everything comes from overseas,” Farinello said. “Other countries protect their products. We don’t. . . . The IMF orders us to do things that in their countries they wouldn’t do, things that destroy us.”

Though not as big as the Abasto, new shopping malls also have come to Quilmes. But, says Farinello, “people just go to walk and look around. They don’t have money to buy.”

An Upsurge in Violent Crime

Emptied of money, the slums fill with rage, Farinello said. Despite its history of political violence, this society had long avoided the kind of marauding street crime that haunts nations such as Brazil and Mexico. In recent years, however, Argentina has endured a growing crime wave that reflects a Latin American trend. Some observers see it as a byproduct of economic modernization.

Crime here lately has turned violent and vengeful. Armed robbers ride in from the suburban slums to their preferred targets: the elegant restaurants of central Buenos Aires. Gangs of bold gunmen take over the bustling establishments and rob diners of cash, jewels and credit cards. They don’t hesitate to shoot if police get in the way; about 50 police officers were killed in greater Buenos Aires last year.

It’s the kind of climate that cries out for change. Farinello predicts the political and economic winds will shift back toward the center.

“I think it’s cyclical,” he said. “ . . . If the system becomes too cruel, [leaders will] realize they are hurting their own interests. They have to soften up.”

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Argentina’s Gains

After forerunner Chile, Argentina was the next South American nation to institute free-market reforms, and it has been most successful in whipping inflation and growing economically. But wages have not followed suit:

Wage Growth

Annual real wage manufacturing jobs, in percent::

1997: 1.0%

*

Inflation

Annual inflation, in percent:

1997: 0.5%

*

Per-Capita GDP

Per-Capita gross domestic product in 1990 dollars:

1997: $6,5123 *

Economic Growth

Average annual EDP growth rates in percent:

1970-80: 1.0%

1980-90: 2.4%

1990-97: 4.3%

* Sources: Inter-American Development Bank