Cry for Argentina: [inside an economic catastrophe].

Buenos Aires, Argentina

Even during the boom times of the 1990s, Jorge Herrera never considered himself rich. But over the last two years, Herrera, a working-class salesman with a wife and four children, has lost his job, been evicted from his rented home, forced to move from one church shelter to another, and reduced to eating in soup kitchens or foraging for food in garbage cans on the streets here in Argentina's capital.

"My situation is like that of this entire country," says Herrera, who is 40. "We have no work, no support, and no prospects. Everything has fallen apart, and we cannot believe that this has happened to us."

Only a few years ago, Argentina boasted the highest income per person in all of Latin America, and was considered a model for the rest of the region. But no more. Argentina's people are now living through the most severe economic crisis in their history. One in every five people is unemployed; others have had their work hours or wages sharply reduced. More than half of Argentina's 37 million people now live in poverty. With fewer goods being produced, and people able to buy less, the economy has shriveled by more than 10 percent.

FROZEN ACCOUNTS, STARVING BABIES

Argentina's economic decline began in the late 1990s. Over the years, the country had borrowed $141 billion from the International Monetary Fund (IMF), which lends money to developing countries, especially those in economic trouble, and from other foreign and domestic lenders. Under pressure from those creditors to run more efficiently, the Argentine government cut back its public services and the wages paid to public employees. The income cuts led people to spend less themselves, which caused the economy to slip further.

But the real collapse began a little more than a year ago, in December 2001, when it became clear that Argentina was going to default, or declare itself unable to pay, on its debt. Because the government had not made all the spending cuts it promised, the IMF refused any further loans to Argentina.

To prevent nervous bank depositors from emptying their accounts and shifting their money abroad, the government froze savings and checking accounts and decreed that depositors could withdraw only $250 a month.

People were outraged. In less than three weeks, food riots in poor neighborhoods and pot-banging anti-government street demonstrations in middle-class areas left 28 dead and drove President Fernando de la Rua from office. Political chaos followed. One president held office for a single day; another was in power for one week. Finally, last January, Argentina's Congress chose Eduardo Duhalde, a leader of a populist political party that has been the nation's largest and strongest for more than 50 years, to complete de la Rua's term.

These days, work is so scarce that contestants on a popular game show compete not for cash or merchandise, but for a blue-collar job. For the feast day of San Cayetano, the patron saint of workers here, entire families camped out for weeks in unheated tents as an offering to the saint who they hoped would gain them a job, or at least help them to keep one.

Perhaps worst of all, Argentines are now being bombarded with images of babies dying of hunger in some of the country's remote provinces. That would be traumatic anywhere, but it is especially shocking to a nation that always thought of itself as "the granary of the world" because of its fertile fields and rich natural resources.

Seeing Argentines endure these hardships, other Latin Americans are having serious reservations about following the free-market policies championed by the United States, that are seen as having contributed to Argentina's tragedy. Neighboring Brazil, the largest country in the region, and Ecuador have elected leftist presidents who promise not to let the same thing happen there, and opposition is also growing in countries like Uruguay and Peru.

AN "ECONOMIC CATASTROPHE"

Duhalde's new government immediately announced that it would halt repayment of most of Argentina's $141 billion debt. That made creditors unwilling to lend more money, and alienated the U.S. and other foreign governments. The default has also helped undermine the peso, Argentina's currency, which has lost nearly three quarters of its value against the dollar. That means an Argentine bank account worth $1,000 at the start of 2002 is now worth about $280.

By July, the outlook was so discouraging that President Duhalde announced that he would leave office six months early, at the end of May 2003. That decision has weakened his authority even further and led to months of fighting over the date of the election to choose his successor. (The election is now scheduled for late April.)

"We are used to political crises, but this sort of economic catastrophe is something new that we are not prepared for, and do not know how to deal with," says Marcos Aguinis, a former cabinet minister and the author of The Atrocious Enchantment of Being Argentine, a best-selling book. "In the past, Argentines have always said there is nothing that can't be repaired by a good harvest, but that sort of stupid slogan isn't going to help us now."

THE LEGACY OF EVITA

During the first decades of the 20th century, Argentina was, in fact, one of the world's richest countries, with a standard of living similar to that of Canada. Exports of grain and meat created a large middle class and drew millions of immigrants, mostly from Italy and Spain. Buenos Aires became a prosperous, elegant city known as "the Paris of South America."

But that sense of endless riches encouraged the country to live beyond its means, especially after General Juan Peron took power in 1945. He and his wife, Evita, set up a costly social security and charity apparatus intended to persuade Argentines that the Perons were the country's saviors. But they did little to increase the country's production to pay for these services. What's more, the Perons plundered the nation's resources for their own financial gain.

Evita, who acquired a kind of cult status among Argentines, especially the poor, died of cancer in 1952. Though Juan Peron was overthrown three years later, his supporters never lost faith. A movement known as Peronism, with ideals of social justice and a vision of Argentina as a world power, has continued to capture the imagination of many Argentines. Peron returned to power in 1973, but by then the economy was in ruins and political violence was rampant. When he died a year later, the country plunged into chaos, paving the way for a military coup in 1976.

For the next seven years, Argentina suffered through a brutal right-wing military dictorship, which carried out a campaign against its own people known as the "dirty war." As many as 30,000 suspected political opponents disappeared and may have been killed. Only a humiliating defeat by Britain in the Falklands War of 1982 prompted the discredited military regime to step down and allowed democracy to be restored.

But the economy continued to falter. In 1989, Peronists elected Carlos Menem as President. Menem took the revolutionary (and extremely un-Peronist) step of tying the Argentine peso to the American dollar at a value of one-to-one. The return to stability brought a flood of foreign investment, attracted by the security of a currency that was exchangeable for dollars with virtually no restrictions.

Yet the policy of "convertibility," as it became known, carried the seeds of its own destruction. As the dollar became stronger against other currencies, so did the peso, and Argentine manufacturers found it harder and harder to sell their goods abroad because they were relatively expensive. At the same time, Argentines splurged on costly imports and foreign travel. In other words, the country reverted to its old pattern of spending more money than it was taking in.

AN IDENTITY CRISIS

A year after disaster finally hit them, Argentines are still surveying the wreckage of their economy and wondering what to do next and when things will get better. Not much is likely to happen before the election this spring, but many Argentines argue that the country needs a change of attitude as much as it needs a change of policies.

"We are living in the no-man's-land of a permanent identity crisis," says Mariano Grondona, a columnist for the newspaper La Nacion and the author of two books about Argentine economic development. "Everything is going to continue badly for us, getting worse and worse, so long as we remain dazzled by the same fantasy of a rich, easy, and secure Argentina."

CRY FOR ARGENTINA > INTERNATIONAL Fantasy of the Easy Life Throws Once Wealthy Argentina Into an Economic Tailspin 

DISCUSSION QUESTIONS

* Do the U.S. and other relatively wealthy countries have an obligation to help Argentina?

* If you said yes to the previous question, do granting loans and other assistance give outside donors the right to control Argentina's economy?

TEACHING OBJECTIVES

To help students understand the economic chaos in Argentina, specifically how mismanagement of a nation's economy can throw people into poverty, unemployment, and despair.

CLASSROOM STRATEGIES

CRITICAL THINKING/DISCUSSION: Students may think international economics is an arcane topic, but you can help put the situation into terms they understand.

First, ask students what would happen in their own lives if their family borrowed money that they could not pay back. Suppose they had to give up movies, shopping, and other things to pay back their loans. How would this affect their lives? Would anyone be willing to lend them more money? The answer, of course, is no--and that's what happened in Argentina. Explain that this is a big part of why Argentines are hurting.

Note the downward spiral of the economy resulting from the country's $141 billion debt. Note also the impact of the IMF's policy on the Argentine economy. The decision to cut wages paid to public employees, in response to IMF pressure to run the country more efficiently, had the same effect on Argentines that a cut in wages would have on average Americans. When people lose their income, they cut their spending.

RIPPLE EFFECT: Give students an image to work with. Draw five or six concentric circles on the board, with a big dot in the middle. Tell students the dot is a rock and the circles are the ripples caused by the shock wave of the rock hitting the surface of a pond. Like the rock, the shock of cutbacks and freezing accounts sent shocks through the economy. People who have less money can't buy other's people's goods and services. And so those people must cut spending, which hurts still others, sending the economy into a tailspin.

THE HUMAN SIDE: Give students a homework assignment. Acting as Jorge Herrera, they must write a letter to a cousin in the U.S., in which they describe how the collapse of the economy has affected not only their lives today, but their hopes for the future.

Upfront QUIZ 2 FILL IN THE BLANK > INTERNATIONAL > PAGES 14-17 DIRECTIONS: Write the correct answer on the line provided.

1. Just a few years ago, Argentina was the envy of Latin America. It was often cited as a model for the region, in large part because it boasted the highest average -- per person in Latin America.

2. Two of the most devastating examples of Argentina's economic plight are high unemployment and the fact that more than half the population of 37 million is now living in --.

3. Once known as the "granary of the world" for its rich agricultural resources, Argentines now wince at news photos of -- in remote provinces dying of starvation.

4. Other Latin American countries look at Argentina and question the -- market economic policies that are seen as having contributed to the country's economic collapse.

5. Neighboring --, the largest country in Latin America, has just elected a leftist President, who vows not to let happen to his country what happened in Argentina.

6. Argentines were shocked in December 2001 when confronted with a government edict that froze their -- and -- accounts.

7. Foreign creditors refused to lend any more money to Argentina after President Duhalde halted -- of his country's $141 billion debt.

8. One of the many consequences of Argentina's economic crisis is that the value of the --, the country's currency, fell by nearly 75 percent in 2002.

9. Two figures indelibly linked to the history of Argentina and its economic woes are General Juan -- and his wife, Evita. They set up vast social welfare services, but never increased economic production to help pay for these services. (They also stole millions in the process.)

10. For a period of seven years in the late 1970s and early 1980s, Argentina was controlled by a brutal military dictatorship. Only Argentina's loss to -- in the Falklands War of 1982 ended military rule.

ANSWER KEY

1. income

2. poverty

3. babies

4. free

5. Brazil

6. checking/savings

7. repayment/payment

8. peso

9. Peron

10. Britain