A Public Forum with Civil Society Leaders from Latin America

Realities, Myths & Options:

The Impact of -- and Alternatives to -- World Bank & IMF Economic Policies in the Hemisphere

Tuesday, 18 April, 9:00am - 1:00pm
Room 2128, Rayburn House Office Building
U.S. House of Representatives

Organized by The Development GAP and the Global Civil Society Network, SAPRIN

From Buenos Aires to Washington, citizens are protesting the structural adjustment policies that have been prescribed by the International Monetary Fund and the World Bank. The Bank's president, as well as other multilateral institutions, has lamented the profound poverty and inequality in the region that have accompanied these economic reforms. The U.N.'s Economic Commission for Latin America has said that no single macro-economic model can resolve the region's problems. And a U.S. Congressional commission has recommended that the powers of the Bank and Fund be radically scaled back. In this rapidly evolving context, trade unionists, small-business promoters, rural organizers, women's-rights advocates and economists are coming to Washington to present grassroots perspectives on the effects that these global institutions have had on their economies and societies. They will explain alternative economic approaches that can and should be taken to rebuild the productive capacity of their countries and the livelihoods of their citizens. And they will explain how they are involving hundreds of local and national organizations in constructing this foundation for economic progress.

SAPRIN is a 3,000-organization international network created in 1997 to engage the World Bank's president and governments on four continents in participatory assessments of the impact of structural adjustment policies. It has since expanded its activities, including an independent formulation of alternative policy proposals, to more than a dozen countries, including major emerging-market economies.

Please join an exceptional array of civil-society leaders from Argentina, Brazil, Ecuador, El Salvador and Mexico in a morning full of discussion on the most pressing issue today in the hemisphere.

SAPRIN Secretariat c/o The Development GAP - 927 Fifteenth Street, NW , Washington, DC 20005 USA Tel: 202/898-1566 - Fax: 202/898-1612

E-Mail: secretariat@saprin.org - Web: http://www.saprin.org/ / http://www.developmentgap.org/

Jorge Carpio is an economist, sociologist, labor expert and Executive Director of IDEMI, an NGO that assists small and medium-sized enterprises in Argentina. He is the Coordinator of FOCO, the SAPRIN initiative in Argentina focused on the participatory development of a civil-society alternative to the country's economic adjustment program.

Presentation by Jorge Carpio, Coordinator of SAPRIN/Argentina (FOCO)
at the SAPRIN/Development GAP Public Forum in the U.S. Congress
on World Bank and IMF Economic Policies

April 2000

Thank you for being here with us to share the concerns we have regarding what is occurring in the countries of our continent in relation to the structural adjustment policies applied jointly by World Bank and International Monetary Fund for many years.

Listening to the comments of my colleagues who spoke before me only confirms that there has been one sole policy recipe applied uniformly in different countries. It could only be expected, then, that this recipe would have had and continue to have more or less similar effects in all of our countries, leading to the serious social and economic situation that the continent as a whole is facing.

Argentina does not escape this reality, since the policies and measures applied have been the same as those we just heard about in other countries. For this reason, the effects couldn't be different. Thus, and as Luis Anderson and my other colleagues here have stated, this policy has winners and losers, and on our continent the main losers have been working people.

For Argentina, application of the adjustment program meant putting the country on a socially regressive path leading to a liquidation of all the advances achieved after more than a half century of struggles for the rights of working people and low-income groups. In this sense Argentina is different from the case of Bolivia, a country which the previous speaker defined as being poor and which the adjustment program has further impoverished. Argentina was a country that had achieved a certain level of development, placing us among the primary countries in Latin America in terms of GDP and the principal indicators of general welfare -- such as health, education, infant mortality and similar indicators that reflected the existence of a society with a high level of social integration and homogeneity. Twenty years of systematic application of consecutive adjustment policies has transformed the country from being one on a path to development to being a country on the path back to underdevelopment.

If we compare some indicators of this phenomenon from the decade of the eighties and that of the nineties, it can be clearly seen what is meant by the regressiveness I referred to. In the decade of the eighties, the unemployment rate remained at an average of about six percent. At the end of the century, in 1999, this rate had grown to more than 15% and showed a trend of remaining at that level or increasing. In 1980, the poverty rate was at seven percent of the population; in 1999, official statistics of the Ministry for Social Development and the Environment revealed that 37% of the population was living in poverty. From the employment perspective, and taking into account the important role of employment with regard to the level of poverty and living conditions, the statistics show that about 60% of the economically active population experience different types of problems in the labor market, due to either open unemployment, underemployment, informal employment or employment in "trashy jobs" -- that is, unstable jobs with low salaries and no benefits.

The situation that has been imposed on this country as a result of the adjustment program, and that can be seen in indicators of poverty, unemployment, diminished consumption and reduced income levels, reflects the new redistribution of wealth that these policies promote to the detriment of the middle strata and low-income groups. These are the sectors most directly affected in terms of their rights and social gains. The middle strata, in particular, were something that distinguished the country's social structure from that of the rest of Latin America.

The import-substitution industrialization process that characterized Argentina's social and economic evolution from the early decades of the twentieth century facilitated the growth of an important middle class based in the industrial, commerce and service sectors and that grew to represent nearly 60% of the country's population. Beginning in the 1980s, the application of adjustment programs directed by the IMF and the multilateral development banks have directly affected this population sector, giving rise to the phenomenon of the "newly poor" or the pauperization of the middle strata. In other words, those who were not poor joined the ranks of the poor. Poverty grew and the composition of the poor became more diverse as a result of this phenomenon. Together with the historical or structural poor -- that is, those who were always poor -- we now find the newly poor coming from the pauperized or impoverished middle strata to swell the numbers of those in poverty.

The Basic Household Survey of the National Institute of Statistics and Census for the greater metropolitan area of Buenos Aires, the country's principal urban area, reveals that in October 1999 more than 48% of the population or 5.8 million people were "newly poor" -- meaning that their living conditions had deteriorated to the point of pushing them below the poverty line. The number of newly poor in the entire country is three times greater than that of the historically or traditionally poor. The most significant statistical causes of the impoverishment of these sectors have to do with the loss of household income due to the lack of employment or salary reductions imposed under adjustment programs.

The impact of these programs has deepened the negative distribution of income, widening the gap that separates those who have more from the needy. In Argentina, the highest decile on the income-distribution curve accounts for more than 57% of income, while the lowest decile only accounts for 1.7%. During the 1990s, the GDP grew somewhat more than 57%, yet in that same period the gap between rich and poor increased by the same proportion, that is, by about 60%. The city of Buenos Aires, the wealthiest territory in the country, does not escape from this trend. In the 1990s, inequality grew by 127% and, along with it, job insecurity, unemployment and poverty.

Is there any doubt that this panorama is the result of the adjustment policies applied systematically during all these years? These results show in a powerful manner that, while a few have gained, many -- the great majority -- have lost. Simultaneous with the increase in unemployment and poverty, never has the Gross Domestic Product grown as much as it has in these years. So together with the increase in wealth, never in Argentina has poverty increased so much or have there been so many people living in poverty. Never has the gap been so large between those who have more and those who have less. Never have those who have more been so few and never have those who have less been so many.

As we have said many times, this situation is the direct result of the adjustment policies applied in recent times. It is impossible to think that after 20 years of systematic application of these programs, we could blame the old policies of 20 years ago for being the cause. It is evident that 20 years of systematic application of these policies has brought about the results we see. Thus, the causes must be found in the policies that were in effect in these past years. These policies have had at their core the adjustment programs that all our countries have in common and that have included privatization and full deregulation of markets, both domestic and foreign. Such policies assume indiscriminate trade liberalization with the immediate effect of bankrupting small and medium-scale enterprises, which employed 74% of those with jobs. This bankruptcy of small and medium-scale enterprises has resulted in the high level of unemployment and, simultaneously, the increase in job instability.

The fall in income experienced by the population is closely tied to this problem and goes hand in hand with the increase in unemployment. This drop in income has continued to the point of becoming a significant impediment to welfare and is resulting not simply in a decrease in consumption, but is also affecting consumption of basic goods. According to official economic indicators in December, the fall in consumption levels has continued to expand and has begun to have an impact in the consumption of foodstuffs. People don't have money to buy food, and this shows the seriousness of the situation that we are currently experiencing in our society. Yet it is still said that the solution requires a continued deepening of the policies that gave rise to these phenomena.

The seriousness of the social conditions in the country can also be seen through the indicators that show the decrease in the quality of public education and the deterioration in the health conditions of the population. This deterioration is reflected in the increase in infant mortality rates, after Argentina had become a pioneer in Latin America in terms of having reached infant mortality levels comparable to those in developed countries. To date, the new causes of mortality and morbidity are directly related to the classic causes of death and illness in lesser developed countries that were thought to have been overcome forever in Argentina. In other words, contagious diseases have re-emerged, and phenomena that appeared to be forever overcome, such as endemic illnesses that are illnesses of poverty, have returned and have come back to being part of the context of the lives of the poor.

The deterioration in the quality of education, in health conditions and in working conditions gives the most powerful social indicators illustrating the configuration of two countries, or better said, of one country with two societies. On the one hand, there is a society composed of a limited percentage of the population that is part of the globalized world. On the other hand, there is a society composed of the majority of the population that finds itself on the margins of globalization and the advantages that the latter brings. While a small part of the population, that which is globalized, lives under conditions with standards similar to the first world -- sharing the same values, beliefs, consumption and income patterns of the first world -- the large majority of the population not only doesn't even reach the living standards of the second world, but is relegated to living under conditions best known as part of the third and fourth worlds. Thus, we have a deeply dualized society in which poverty and the phenomenon of exclusion, of never being able to return to the labor market, of remaining outside forever, are becoming serious realities.

In the past, unemployment was a temporary situation for a worker who was leaving one job to go into another - the average length of unemployment in Argentina at any particular time was a maximum of three months. Today we are experiencing the phenomenon of long-term unemployment, in which we are seeing increases daily in a worker's average period of unemployment. This indicates to us that those who leave the labor market are unlikely to return. Thus, the phenomenon of people excluded from economic activity as a result of being excluded from the labor market is something that we had not previously known in Argentina.

Faced with this situation, what alternatives are being put forward? First, there is a central issue to take into account. At the same time that we are experiencing these conditions, Argentina has been in a state of economic instability and subjected to what could have been a characteristic of the adjustment of the economy, the program of convertibility that anchors the peso to the dollar at a one-for-one exchange rate. This convertibility has become a mill that churns the country's economy, making its imposition difficult to escape. If at one time convertibility was a mechanism used to stabilize the economy, ten years after its establishment it has become a strait jacket impeding the search for a solution that does not, in the end, imply abandoning the convertibility program.

The convertibility program has meant that, in order to function, Argentina's economy needs an ongoing, permanent influx of foreign capital. Last year, the economy needed 20 billion dollars in foreign capital in order to operate, a large percentage contracted through indebtedness. In the last four years, the debt has increased by 80 billion dollars, and the economy, in order to function, needs to contract further debt. This year, 20 billion dollars are needed. As long as the economic contraction continues to deepen -- last year the GDP fell by 3.5 percent and there is no reason to think there will be a real recovery -- the only possible solution to this situation is the generation of foreign exchange by increasing exports, which does not seem possible in Argentina and no serious analyst is saying that this could occur. The projection is that next year we would need 25 billion dollars. In other words, the debt continues to grow as a basic condition for the economy to operate.

Yet, at the same time, this debt means that 17 percent of the national budget this year is going solely to service the debt. It is calculated that next year the debt service will reach 20 percent. In other words, we find ourselves in a perverse situation. The increase in indebtedness has become a vital necessity in order for the economy to operate, while, at the same time, the percentage of the state's budget allocated to paying interest on the debt continues to increase. We really don't know where this situation is going to take us. All serious analysts believe we are on a path that at some point is going to lead to a real explosion. The search for solutions assumes identifying, among other things, the paths to confront these two phenomena. One the one hand, how do we leave the convertibility program without precipitating a general crisis, which would clearly affect low-income and poor people the most? At the same time, how do we escape from the debt trap, from the ever-increasing indebtedness that has become a basic condition for the operation of today's economy?

This leads us to raise structural issues, which basically have to do with the need to restructure the productive apparatus so that, in principle, it requires less foreign exchange to operate.

Yet any attempt to invigorate the economy assumes, in the final analysis, improving the capacity to increase demand in the domestic market. This capacity needs improving because its potential is still being held back, given that consumption is not only on a daily decline, but is tending towards an even sharper drop. Decreased consumption is a result of two phenomenon: unemployment and decreased income. Increasing consumption to stimulate domestic demand implies expanding the capacity of the domestic market to serve as the pillar for the economy's operation, a basic condition that at this point only the state can impel.

In Argentina's economy, the only sectors that generate domestic demand are the small- and medium-scale enterprises, which have an unfailing ability to invigorate the domestic market. Any serious attempt to put in place policies to break the perverse cycle of increasing indebtedness must first address the administration of the domestic market, granting a more active role to domestic demand and putting in place policies that encourage small- and medium-scale enterprise. Such policies require strengthening the administrative capacity of the state to establish effective regulatory mechanisms to control the markets and indiscriminate liberalization. These policies need to support small- and medium-scale enterprise and enable greater capacity for consumption on the part of the population by raising income and employment levels.

These are issues that go to the crux of the system and are not easy to address. A series of aspects need to be taken into account so things don't get out of hand and produce further problems. The "tango" crisis, which has yet to occur but which everyone is waiting to happen, is one more in the line of recurrent crises occurring in the Latin American economies. Yet we are, without doubt, in a situation in which even the right wing knows that the problem must be addressed immediately, as the situation is at the breaking point.

After a few years of relative calm, due to the population's uneasiness and fear of unleashing a new hyperinflationary process, once again the society and its organizations have gone into motion to say enough of adjustment and to demand a change in policies.

Actions were called by the trade-union federations this past March and there is a process underway to build a social alliance to confront adjustment. It is in context that SAPRIN is working in Argentina, having begun to organize in the second half of 1999. We are involved in mobilizing a range of social forces -- trade unions, business associations, religious groups and so on -- to build a civil-society movement that could join efforts to challenge adjustment policies and put forward alternatives that benefit the majority of the population and not merely the large transnational corporations.

People are increasingly realizing that adjustment programs only benefit a few at the expense of the many. This awareness has begun to mobilize many sectors in society to seek alternative paths that can lead to development -- a development which takes into account people's dignity and reclaims the values that were the patrimony of the country throughout its history, such as social wellbeing and the possibility of social integration and opportunities for all.

This is the work in which we are involved. We have called together representatives of a broad range of social and political forces and are in the midst of a process to develop a programmatic platform that would elaborate on the proposal to resolve the problems I referred to earlier. The central aspects of how to move toward a solution are clear. What we need to look for are the appropriate manner, means and moments so that organized citizens can take direct responsibility for ensuring a participatory process, because only when there is commitment to true civil-society participation will it be possible to get out of the economic jam we are in. Thank you very much.