Argentines Blame Woes on Trade

Jacqueline Bua knows there are real enemies in the world, but more than anything, she says she has become a victim of forces beyond her control.

Last year, the health-care worker saw her salary drop by 12%, and she expects it to fall an additional 13% because of what are known here as “adjustments,” cuts ordered by the government to help balance the budget. The cost of essentials has climbed, with gasoline, for example, topping $4 a gallon. Her husband, a general contractor, has been out of work since 1998, and like the rest of the growing number of jobless, he has little hope things will turn around soon.

“Conditions are getting worse and worse,” said Bua, a 42-year-old biologist as she joined tens of thousands of marchers last week to protest the latest round of pain. “We try not to give up, but we have less and less.”

Like many Argentines, Bua blames inept and corrupt politicians for the country’s current fix. But she vents even more rage at a more general and distant target--globalization, or the foreign takeover of Argentine companies and the massive layoffs that have put every seventh person out of a job. She shares the viewpoint of the tens of thousands of protesters who took to the streets of Genoa, Italy, over the weekend at the meeting of highly industrialized nations. They were protesting globalization policies that, so the argument goes, put big business first and local cultures and social fabric a distant second.

“We should stop doing business with the Americans. It has only made things worse,” she said, insisting that her country’s real problems began when it opened its doors a decade ago to foreign investment.

For many politicians in Latin America and the Third World, foreign money was supposed to cure all ills. New capital would lead to new factories, creating jobs and spreading wealth that could be reinvested in local economies that would make products for international trade. Greater physical well-being would lead to greater political freedom and growth in public participation and democracy. The vision is generally called the neoliberal model, linking economic and political development. It is a vision that is increasingly being challenged in forums from Seattle to Genoa and in the streets of Buenos Aires.

Trade has long been considered the lifeblood of economic development, but it took on a new urgency for policymakers who argued for pouring new capital into what had been closed political systems. The issues seemed similar whether the beneficiaries were the new countries created out of European colonialism in Africa or the hard-pressed countries of the former Eastern bloc.

In the 1980s in Latin America, the hope was that new trade and privatization would open borders that had been closed by protectionist policies. On the block went lumber mills in Brazil, telephones in Argentina or electric utilities in Colombia or the hundreds of industries in Mexico. The purchases were supposed to bring competitive markets, lower prices and greater wealth to even the poorest parts of society. In many cases, it didn’t work out that way.

Complicating things is the reality that when Argentina found it could not borrow needed funds except at a ruinous cost, what began as a local problem quickly spread to other Latin American markets, then threatened emerging countries in other hemispheres. Facing rising interest rates to fund its debt, Argentina’s politicians said they were forced to cut salaries and pension benefits to avoid devaluation and possible default.

“An Argentine collapse would create pressure for countries to depart from the Washington consensus that foreign investment and free trade are the drivers of growth,” said Dani Rodrik, a political economist at Harvard.

Economists also fear that “reform fatigue” could set in among other Latin American nations, which could revert to protectionist trade policies. The political gains of increased democratic governments in the region could lose ground.

“The aftermath of an Argentine collapse could have enormous consequences, because it will be seen as a failure of neoliberalism and it could destroy the advancements of the past decade,” said Ricardo Hausmann, former chief economist at the Inter-American Development Bank and now a Harvard professor.

In the early 1990s, Argentina jumped on the free-market bandwagon, selling its state-run oil, electricity, airlines and telephone companies. But instead of the dynamic growth privatization’s promoters promised, the economy has been shrinking and the country is well into its fourth year of recession.

“The public’s dissatisfaction with privatization is very large,” said Juan Luis Bour, an economist here with the Fiel think thank. “But the problem is not the reforms, but government mismanagement,” he said.

The job market has felt the pain. May unemployment rose to 16.4% and will get worse before it improves. The country needs to create 400,000 jobs this year just to keep pace with population growth. Instead it has lost 400,000 jobs for a net deficit of 800,000. That helps explain the growing lines of youths outside the Spanish and Italian embassies hoping for permits to work abroad.

The bad news is not limited to Argentina. This year, Latin America as a whole is expected to post its second year of flat to negative economic growth out of the last three. Perhaps what’s worse is that the social advances neoliberalism was supposed to generate have been nonstarters.

Although the percentage of the population living below the poverty line declined in the 1990s to 35%, from 38% over the last decade, Latin America’s poor increased in absolute terms by 8 million, said Gustavo Yamada, an economist at the Inter-American Development Bank in Washington.

Infant mortality is down and more children are enrolled in primary school, but the length of time spent in school, before joining the work force, has declined across the hemisphere. The informal economy made up of people who don’t pay taxes or receive government benefits also is increasing, and with it comes less revenue for the state.

Mauro Guillen, a professor at University of Pennsylvania’s Wharton School, said there is no magic bullet that leads to development and prosperity in emerging markets.

“It’s no wonder there is disappointment when these countries are told to do this, they do it and nothing happens,” he said.

Even economists dissatisfied with economic progress in Latin American countries prefer that the nations remain on the neoliberal path. Several voiced concerns over the apparent decision of the United States and the International Monetary Fund to not extend more aid to Argentina. The IMF, which last year led a $40-billion aid package for Argentina, and the Bush administration refused more aid, saying that Argentina needed to solve its own problems. That led to negotiations between the central government and the opposition governors, who run the provinces, over the amount of cuts needed.

Even though there has been a political agreement, no one expects Argentina’s problems to end quickly.

Working conditions in her laboratory have steadily worsened, Bua said. Basic supplies are becoming increasingly scarce. But the bigger problem is the future.

“The worst is that the youth want to leave the country,” she said. “They see no way out.”