TIME: Almanac 1995

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<text id=89TT2910> <title> Nov. 06, 1989: A Chasm Of Misery </title> <history> TIME--The Weekly Newsmagazine--1989 Nov. 06, 1989 The Big Break </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 64 A Chasm of Misery </hdr><body> 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. </body></article> </text>