CHALLENGES 2006-2007: Argentina’s (Economic) Growing Pains

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Jan 9 2007 (IPS) - Just five years ago, Argentina collapsed. But it was able to curb the slide into the abyss and soon became one of the leaders of economic growth in Latin America, with major improvements in employment and income distribution and a decline in poverty levels.

Nevertheless, there are still problems.

“Public transport conditions are really bad, because since the economy recovered, the mass transit fleet is simply unable to cover demand,” said Sergio Orona, a volunteer with the People’s Power Civic Association in La Matanza, a working class neighbourhood of Buenos Aires that is home to more than two million people.

The problem that Orona mentioned to IPS somehow sums up the current state of affairs in Argentina. The revival of the economy is especially reflected by the increase in consumption, although the benefits have not been felt equally by everyone, and public services have not all kept up with the growing demand.

The social activist said there are poor families who have been able to leave the worst of the crisis behind, although that is not true for everyone. He noted that in La Matanza, people over 50, especially female heads of households, only manage to find temporary work these days.

As the middle class recovers, work has become more widely available in areas like construction, household repairs, domestic service, child care or bus driving. However, many of these jobs are temporary and informal, and it is still a challenge to find steady, stable employment.

According to the latest Economic Commission for Latin America and the Caribbean (ECLAC) social panorama report, the region, which has benefited from improved global economic performance, enjoyed its fourth straight year of economic growth of over four percent in 2006, a level that will be maintained this year.

In South America, Argentina’s economic growth last year was more than twice that of Bolivia, Brazil, Chile and Paraguay.

This country, which suffered – along with neighbouring Uruguay – a devastating economic crisis in late 2001, grew 8.5 percent in 2006, similar to the average economic growth rate reported over the last four years.

Economists of different stripes agree that the accelerated rate of gross domestic product (GDP) growth will continue this year thanks to improved purchasing power, spare industrial capacity, high prices for the country’s export products, a trade surplus, and tax collection, which is helping to maintain strong foreign currency reserves.

Nonetheless, there are fears of an upsurge in inflation, which in 2006 stood at around 10 percent, and climbed no higher thanks to a strict policy of agreements between the centre-left government of President Néstor Kirchner and price-setting companies.

Another source of concern is energy supplies, which are falling short due to a lack of necessary investments in the power industry.

But analysts say that barring unforeseen developments, the economy will bring no unwelcome surprises over the next year.

The social outlook, however, is not so rosy, and the advances seen in the recent past seem to have come to a standstill.

The sector that benefited the most from the advances on that front were pensioners, a long-neglected group that has received nearly a dozen pension raises, bringing the total increase since the peak of the crisis to 200 percent of their incomes.

The unemployment rate, meanwhile, dropped from 24 percent in 2002 to 10 percent, counting among the “employed” the unemployed heads of households who receive a small monthly government stipend. If they were not included, the unemployment rate would be nearly two percent higher.

The creation of jobs is largely driven by construction, the car industry, agriculture, banking, insurance and tourism. According to the Labour Ministry, nearly 385,000 new jobs were created over the last year, mainly in the formal sector of the economy.

Although the informal sector accounts for almost 40 percent of all employment, formal sector employment grew nearly 12 percent over the last 12 months, while employment in the informal economy actually shrank 2.2 percent – a shift that benefited the most vulnerable socioeconomic strata.

After four years of recession culminated in the December 2001 economic meltdown, the poverty rate skyrocketed to 57.5 percent of the population of nearly 37 million. But it has fallen to 33 percent, and continues to go down.

That is still a high percentage, however, said opposition Deputy Claudio Lozano, an economist and adviser to the left-leaning Central de Trabajadores Argentinos, one of the country’s two big union federations.

He pointed out to IPS that 33 percent is still higher than the poverty rate seen in the 1990s, when poverty began to grow.

Lozano also expressed concern over the country’s skewed income distribution, even though official figures show an improvement: in 2003, the income of the wealthiest 10 percent of the population was 56 times greater than that of the poorest 10 percent, and now it is “only” 35 times greater.

But “the improvement in income was noted in the middle and upper-income sectors, not among the poor,” said Lozano. “Although economic activity is nearly 20 percent higher than it was in 1998, when the recession began, an economic model marked by greater poverty and unemployment and a wider income gap is being consolidated.”

The economist said these problems are a result of the economic model that has been applied, and that there is little will to correct the shortcomings. “This year we will see continued progress towards sustained economic growth, a reduction in poverty and unemployment, and a narrowing of the income gap, but these changes will not be in proportion to the strong economic recovery,” he argued.

Juan Carlos Alderete, the leader of the Corriente Clasista y Combativa, one of the movements of the unemployed that cropped up during the recession and the crisis, concurred with Lozano.

“Argentina has pulled out of the crisis, but the growth has been uneven, and has not benefited everyone,” he told IPS.

In late December, the Corriente held a protest march to the Plaza de Mayo, in front of the seat of government, where the demonstrators camped out to demand an increase in the government assistance stipends.

At the peak of the crisis, the government’s unemployed heads of households plan provided monthly payments of 150 pesos (50 dollars) to more than 1.6 million families. The number of beneficiaries has now dropped to nearly half of that total, as people found jobs and dropped out of the programme.

But the amount received by the families has remained the same, despite the rising cost of living.

Today, the poverty line for a typical family of four is 850 pesos (285 dollars) a month.

“The number of poor families has gone down, but those who are still poor are living in miserable conditions,” said Alderete. “The state should redesign its assistance programmes, in order to provide vocational training for unskilled workers.”

Both Alderete and Orona said unemployed people over 40 are the worst off. “They need to have access to education, they need training, they need to learn new skills,” said Orona.

In response to such demands, the Labour Ministry reported that between 2004 and 2006, 110,000 beneficiaries of programmes for the unemployed completed their primary or secondary school studies or received vocational training.

But as Orona pointed out, in some areas, like La Matanza, people are finding it impossible to make it back from the abyss.