BUSINESS, Page 64A Chasm of MiseryLatin America's rich and poor have become separate, warysocieties. Unless leaders bridge the gap, the countries riskviolent upheavalBy Frederick Ungeheuer/With reporting by Andrea Dabrowski/Mexico City, Laura Lopez/Rio de Janeiro and Gail Scriven/Buenos Aires
At the gold-and-white portals of the opulent high-rise at
2095 Libertador Avenue in Buenos Aires, men with pistols bulging
under their open vests flank the doorway. Before anyone is allowed
into the building, the guards check via walkie-talkie with the
building's most prominent resident: Argentina's new
Ambassador-at-Large, Amalia Lacroze de Fortabat. She is the
country's richest woman, with an estimated net worth of more than
$1 billion. "I hate bodyguards," she apologizes, as she escorts a
visitor into the elegance of her Louis XVI salon in a duplex
apartment on the uppermost floors. "I hired them only after some
people tried to kidnap my teenage grandson two years ago." The
physical risks of being rich keep rising in Argentina, as they do
in any of the debt-strapped, inflation-ridden countries of Latin
America. But the rich keep getting richer.
And the poor? In the bleak and bitter outskirts of Buenos
Aires, thousands of people stand in line every morning, eyes glazed
by hunger, clamoring for government handouts. The residents of most
lower-class neighborhoods have had to fend for themselves. In the
city's northern barrio of San Fernando, Ever Ponce, 30, and his
brother Miguel, 37, work as shelf clerks in a supermarket and try
to make ends meet with second jobs as painters at a private
airport. Hard-pressed as they are, in recent months they helped
organize a soup kitchen for their hunger-crazed neighbors, lining
up donations of food from local companies. The project fed 300
people a day, most of them children. Parents were too embarrassed
to come and sent their children with pots to fill.
Every country has its rich and poor, but in Latin America the
gap between them is especially vast and is growing worse. The
richest 20% of families enjoy a more extravagant life-style than
that of the upper class in such industrialized countries as the
U.S. and Japan. On the other side is an enormous group, 60% to 80%
of the population, whose situation is approaching the despair of
sub-Saharan Africa or Bangladesh. Of Argentina's 32 million
citizens, close to 10 million are below the poverty line (a family
income of less than $100 a month) and an additional 15 million
hover just above it.
The plight of Latin America's middle and lower classes is
a radical reversal from the sunny days of the 1960s and early '70s,
when the region's rapid economic growth offered the hope of
broad-based prosperity. When the countries' heavy debt burdens
triggered inflation and stagnation in the 1980s, most Latin
American families began sliding rapidly into hardship. This year
Mexico's annual inflation rate is running at 17% (down from 52%
last year), Argentina's, 3,500% (up from 388%) and Brazil's, 1,600%
(up from 934%). Perversely, the rich have helped perpetuate the
economic malaise by such tactics as sending their money to safe
havens abroad and dodging taxes that could help ease domestic
deficits.
The economic polarization has afflicted all three of Latin
America's largest and most industrialized nations: Mexico, Brazil
and Argentina. New Presidents in Mexico and Argentina have launched
economic reforms that offer some hope. But Brazil, heading toward
presidential elections on Nov. 15, has the potential for a social
explosion more devastating than the one that hit Argentina last
June, when 14 were killed in food riots. Brazil has the world's
eighth largest economy, but the gap between its rich and poor is
one of the widest of any country.
The economic forces at work in Latin America can be seen
graphically in the lives of the two societies. Argentina's Fortabat
fortune -- based on a cement monopoly, a chain of radio stations,
oil companies and real estate -- keeps growing even in the stalled
economy. In the 13 years since her husband died, boasts Ambassador
Fortabat, "I've doubled the value of what I inherited." After a
decade of inflation, families that converted their wealth into U.S.
dollars have increased their buying power. "Cattle now cost only
$15 a head," she explains. "That's no more than a pair of shoes.
I'm buying more." Her new purchases will join a herd of 185,000
steers and cows on 17 ranches covering an area twice the size of
New York City in Argentina's lush Pampas farmlands. Unlike most of
her rich compatriots, Fortabat is a philanthropist. After last
June's food riots, she quickly responded to a call from the Roman
Catholic Church to help three middle-class Buenos Aires
neighborhoods establish temporary soup kitchens.
In some places, the rich and poor societies exist cheek by
jowl. From Rio de Janeiro's Rocinha, the city's largest hillside
slum, the facades of gleaming luxury apartment houses on the next
hill seem close enough to touch. Maria das Dores, 29, works as a
maid in one of those apartments by day but lives amid the stench
of garlic and urine in one of Rocinha's narrow, rain-rutted streets
by night. For the third time a man has left her alone and pregnant,
and now she must support a wide-eyed, five-year-old daughter with
shiny pigtails. Her first child died of polio. She would like to
be rendered infertile, "but the doctor refused," she says, "because
I can't pay for the operation."
A poster on the waiting-room door at the slum's only medical
station, supported by a private U.S. foundation, warns of an
outbreak of leprosy. "Everyone's suffering here," the nurse
explains, "but we all have views. We see their mansions, but they
don't see us." The most frequent health problem in the slum is
respiratory infection brought on by household environmental
problems like leaky kerosene stoves. The second worst problem is
high blood pressure related to the stress of poverty.
Most worrisome to doctors is widespread malnutrition, which is
producing a generation of stunted citizens. In countries with
abundant agricultural production, the hyperinflated cost of food
is all the more oppressive. In the posh Buenos Aires residential
quarter known as Paler mo Chico, the Conde Roquefort delicatessen
has on display delicious, yellow slices of Swiss Gruyere cheese
the size of sofa cushions. In another part of town, hundreds of
marginales in tattered clothes can be seen rummaging through the
city's proliferating garbage dumps.
Poverty now embraces even those with skills and jobs. In Mexico
City electrician Inocencio Arenas, 58, a widower, shares a bedroom
under the thin corrugated-plastic roof of his cinder-block shack
with two of his adult daughters. He remembers thinking, when
Mexico's economic woes began in the early 1980s, "The crisis is
there for the lazy, for those who do not want to work. But I was
wrong. The value of money has shrunk." The difference between
people like him and the rich, he says, "is that they have money
that reproduces."
Wealthy Latin Americans have developed elaborate techniques for
keeping ahead of inflation and even manage to profit from it. They
typically convert their currency -- pesos, cruzados or australes
-- into U.S. dollars, because they are a better store of value.
Then they invest or deposit their money abroad, where it will be
safe from taxation and political disruptions. In the U.S. alone,
Latin Americans have invested an estimated $326 billion, more than
Brazil, Argentina and Mexico owe their foreign creditors. This
flight of money saps countries of their investment capital and
cripples their ability to pay back foreign loans.
To stem the outflow, Latin American governments are forced to
offer yields on local bank accounts and Treasury certificates
beyond the dreams of the most avaricious bond junkie in the U.S.
Brazilians have so little faith in their own government that it
must offer Treasury bonds with a maturity of one day. Brazil uses
these securities, which carry an annual return of 60% on top of
inflation, to reborrow $60 billion every day, or roughly two-thirds
of its domestic debt. The fat yields are a windfall for the rich.
But by simply expanding the money supply to pay for such costly
borrowing, the governments have fanned inflation and sent the
buying power of the middle and lower class into the abyss.
The downward spiral feeds on itself. The big Latin countries
find it difficult to keep their wealth productively invested at
home in part because their elites are uneasy about the deep split
in their societies and fear they may eventually lose the upper
hand. Economists accuse the Latin ruling class of selfishness and
irresponsibility. "In any country that has suffered the kind of
economic distortions and hyperinflation we experienced here,
something has to be wrong with its upper class. Maybe ours became
rich too quickly," says Roberto Alemann, 70, a Buenos Aires
newspaper publisher and former Economics Minister under two of
Argentina's military dictators.
Latin America's two largest economies may have reached a
turning point. In Mexico, President Carlos Salinas de Gortari has
cracked down on Treasury-robbing corruption, cut deficits and
inflation, and reached a break through agreement to reduce by 35%
the $52 billion the country owes foreign banks. In Argentina,
President Carlos Menem has started to trim the federal bureaucracy,
and promises to privatize money-losing government businesses. In
Brazil the next few weeks may determine whether the country binds
its wounds or erupts in class conflict. Says Finance Minister
Mailson de Nobrega: "There is no doubt that if we succeed in
electing a President with the right message and the support to make
the necessary reforms, Brazil could turn around in three to six
months."
The countries of Latin America will have to reach some kind of
social consensus if they hope to close the miserable chasm between
haves and have-nots. Lat in America's elites, which hold the
majority of their countries' domestic debts, should stand ready to
give the same debt relief they are asking of foreign banks.
Moreover, they will have to bring some of their money home from
abroad and accept more efficient collection of taxes. The countries
will have to do away with their inflation-indexing mechanisms,
which means that the working poor will have to live on lower real
incomes, at least for a time. If Latin America fails to reach any
such social contract, the region will become increasingly
uninhabitable, even for the rich who have tried so hard to insulate
