TIME: Almanac 1993/TIME Almanac 1993.iso/time/110689/p64

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                                                                                BUSINESS, Page 64

A Chasm of Misery


Latin America's rich and poor have become separate, wary
societies. Unless leaders bridge the gap, the countries risk
violent upheaval

By 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 themselves from the miserable reality.