Argentina: Low Inflation has No Effect on Poverty

Latin American Report

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Argentina:

23 June1999

Low Inflation Has No Effect on Poverty

By Marcela Valente

BUENOS AIRES, Jun 14 (IPS) - Consumers in Argentina currently enjoyed stable prices because of the low inflation rate but this has had no effect on poverty, a fact that has been in the forefront of a month-long debate between politicians, the Catholic Church and the World Bank.

In the hyperinflation era of the 1980s, when the price index rose 5,000 percent in one year, poverty reached an all-time high but a price stabilisation plan enabled an improvement in the gross domestic product (GDP) at the start of this decade.

New problems emerged in the mid-1990s however - high unemployment rates and unequal income distribution. In 1994, according to the World Bank, 9.2 million people in Argentina lived below the poverty - a figure representing 27.4 percent of the population. Last year, the number of poor people had increased to 13.4 million - 36 percent of the population. During this period, which coincided with the second term of President Carlos Menem, the number of indigent people - those suffering extreme poverty - rose from 1.6 to 3.2 million, or about eight percent of the population.

The definition of families living below the poverty line are those who cannot afford the basic goods and services necessary to sustain life, estimated in Argentina to be 140 dollars per adult. The indigence level, on the other hand, is 70 dollars per adult.

Argentina was singled out in the 1998 Social Outlook of the Economic Commission on Latin America and the Caribbean (ECLAC) for bucking the general trend of economic growth and poverty reduction in the region. From 1990 to 1997, per capita income in Argentina grew by 37 percent but the number of poor households fell by only three percent. Meanwhile in Brazil, which showed only moderate income growth of 12.5 percent, poverty fell by 12 percent.

''Very low inflation does not always provoke a decrease in poverty (as in Argentina between 1990 and 1997), nor does moderate inflation always impede its reduction (as in Uruguay between 1990 and 1994),'' the report concluded.

The Bank's statistics have been at the centre of debate on Argentina's economy and have been taken up by bishops in the Catholic Church, in particular by the president of Caritas Argentina, Rafael Rey, and by professionals from the president's own office of the State Secretariat of Social Development. An official from that department - who headed a Survey on Social Development which found that 45 percent of children are born into poverty in Argentina - was relieved of her post the day after the report was released.The media seized on the case and accused the government of using the official, Irene Novacovsky, as a scapegoat. She ended up being reinstated in her job after a meeting with President Menem.

Officials in Menem's administration meanwhile continued to insist that poverty levels have fallen since 1989 and, to refute claims to the contrary, published full-page advertisements this month in every morning newspaper.

Sociologist Susana Torrado explained that if ''extremes'' were taken into account, it was true that poverty levels today were lower today than in 1989 because in times of hyperinflation, many middle-class homes fell into the ''poor'' category. However, she warned that this decrease is not permanent but rather a technicality. The government uses a methodology of comparing the basic cost of living of one family with its income. In times of decontrolled prices and fixed salaries, the number of families that are counted as poor rises, although they might be middle class professionals, who own their own homes and cars. ''When inflation rises the number of poor people always goes up and, with stability, the number goes down. What has been unprecedented these last few years is that poverty is rising with zero inflation,'' Torrado said.

In the same way, sociologist and pollster Graciela Romer explained that the economic programme put in place by the government in 1991 managed to reduce poverty levels until 1994. ''(But) at the start of this year, poverty indicators started rising again,'' she lamented.

This phenomenon is associated in Argentina with a rising growth rate, which seems not only to not contribute to lowering poverty but also is accompanied by high unemployment, low wages, inequitable distribution and a fall in investment in public education. In periods of peak economic growth, like 1994, joblessness grew in Argentina to 18.4 percent of the economically active population.

Regarding income distribution, the ECLAC report placed Argentina among the countries that have suffered economic deterioration in the 1990s. ''The evolution of economic growth does not allow a prediction of what could happen with income distribution,'' concluded the study.