The Impact of the Recession in Argentina

At the end of 2001, Argentina was in its four year of recession which arose out of a combination of plunging commodity prices, mounting public debt, rising interest rates, relentless unemployment and an overvaluated currency that makes it hard to compete internationally.  The exact causes of the recession are the subject discourse among economists --- corruption, currency convertibility, the Brazilian currency devaluation, government deficits, the International Monetary Fund, provincial government mismanagement, lack of leadership, union intransigence, clientelism/asistentialismo, Peronism, and so on. 

We will now cite a brief piece of data from the TGI Argentina study.  This is a survey of 5,946 persons between the ages of 12 and 75 years old in Argentina conducted during the first half of 2001.  During the personal interview, these survey respondents were asked to provide an assessment of their current economic condition versus that of a year ago.  This is the standard question about consumer confidence that is used in many countries around the world (see example).  

The top-line results are as follows:

The consumer confidence index is defined as 100% + (% better off) - (%worse off) = 100 + 16 - 47 = 69.  This is rather glum news.  

The behavior of a national economy is not automatically cyclical in the sense that a downturn must eventually be followed by an uptick or vice versa.  Indeed, a recession can be a seemingly endless downward spiral.  Since there is in fact no way to tell what lies ahead, people need to devise strategems to cope with what may be even worse conditions ahead.  But when people decide to spend less, the recession simply deepens.

The impact of an recessionary economy will not be the same for all people.  Unfortunately, it always seems that it is the most vulnerable segment of the population that gets adversely affected the most.  When jobs are cut, the most marginal ones are the first to go.  Wealthy families can use their accumulated assets as collaterals for loans, or use their savings to finance current consumption.  The poor have much less access to such safety nets, and must therefore bear deeper pains when incomes fall.  In the chart below, the survey responses have been tabulated by socio-economic level.

In this regard, there is an interesting book from Javier Auyero, titled Poor People's Politics: Peronist Survival Networks and the Legacy of Evita.  We quote:

It is hardly a new observation that Argentina is currently witnessing a situation characterized by three simultaneous --- and mutually reinforcing --- processes: the escalation of unemployment and underemployment, increasing poverty, and the retrenchment of the populist-welfare state.  Although the origins of these processes can be located in the mid-1970s with the radical transformation of the social regime of capital accumulation, the late 1980s and early 1990s --- especially since the launching of Menem's Convertibility Plan --- have witnessed a deepening and a radicalization of such dynamics: more poverty, less employment, less government intervention, and, consequently, more inequality.  Today, in Argentina, there are --- relatively and absolutely speaking --- more poor people, more unemployed and underemployed people, and more unprotected people than there were in the early 1970s.  Today, Argentina is a much more unequal society than it used to be: the increasing concentration of wealth among high-income groups puts Argentina closer to the Latin American norm.

... In a context of generalized unemployment and extremely low wages, how do those without stable jobs obtain cash to pay for their food?  How do they take care of their health problems?  How do they get their medicine?  How do they build their dwellings?  The current social and economic situation in Argentina lends new urgency to these elementary questions.

... the process of impoverishment and dissociation from the labor market does not merely represent a new form of material deprivation and inequality; it involves a qualitative change in the social relations and expectations of the poor.

The driving force behind this process of qualitative change is the general shift in the way in which extremely poor people cope with day-to-day survival.  Monetary income does not adequately explain the life strategies and living standards prevailing in these places/spaces: we witness new methods of satisfying subsistence needs among the un- and underemployed poor.  The accumulation of the under- and unemployed poor in these spaces considerably reduces not only the monetary income available to individuals but also the reciprocal networks that have traditionally been considered the safety net of the poor.  Although these networks are still important, they are being increasing depleted.

New methods of satisfying subsistence needs develop as marginality deepens.  Cash consumption abruptly decreases, replaced by informal consumption and domestic and self-provisioning activities ... the principal subsistence needs are satisfied by several means: extremely low incomes, (decreasing) network reciprocity between neighbors and relatives, (increasing) underground activities (drug dealing, shoplifting, and predatory crime), (increasing) church charity and state assistance, and (increasing) problem solving through personalized political mediation.

The extensive quotation from Javier Auyero's book is used to explain the importance of the social dimension.  The book itself is an ethnographic study of the problem-solving methods of poor people in the shanty town of Villa Paraíso in Buenos Aires.  Of particular importance is the role played by clientelism whereby political patrons grant favors and gifts in return for votes.  Therefore, the greater significance of this book is the implication that economic recession is too often tackled as a purely macroeconomic problem, without ever considering that there are micro- and macro-social underpinnings which can render any economic policy ineffective.

Postscript:  About two weeks after this article was written, a spontaneous series of riots and demonstrations across Argentina forced President de la Rua to resign before his term ended.  The public reaction occurred in response to the indecisiveness of his economic policies.  His succssor will be facing an equally difficult situation, where most of the obvious options (such as debt default and currency devaluation) will hurt many people and businesses.

(posted by Roland Soong, 12/01/2001)

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