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Rich world, poor world

Special to the National Catholic Reporter

Rodrigo and Danitza just turned 5. They were born two days and a few miles apart in Lima, Peru’s capital, but they may as well have started life on different planets. And it is increasingly unlikely that their worlds will ever collide.

Rodrigo’s father, a lawyer, receives a regular salary and benefits. The child’s mother, a computer programmer, has opted to stay home with him and his younger sister.

Danitza’s mother, like her grandmother, was only 17 when her first child was born. A single mother, Esther spent several months sewing jeans in a small factory -- essentially a sweatshop -- that paid minimum wage (about $110 a month) for a nine-hour workday with a half-hour lunch break. By the time she had subtracted bus fare of about 75 cents a day, the day-care fee for the kids and rent for the single small room she shares with them, there was almost nothing left for food and other expenses. And the six-day workweek left her little time to sew on her own to make up the difference.

Esther quit her factory job when her 3-year-old became ill with a stomach infection complicated by malnutrition. Now she sews at home, selling children’s clothing to small shops in a working-class district. With no health benefits or social security, she is one more drop in Latin America’s ocean of informal workers.

To hear most Latin American leaders tell it, the 1990s have been a miracle decade. Inflation is down in countries where it was once rampant, although Venezuela and Ecuador will register annual inflation of more than 40 percent this year. Democracy is back in vogue everywhere except Cuba, although Bolivia is governed by an elected ex-dictator, the presidents of Venezuela and Peru have an autocratic bent, and Argentina and Chile still chafe under amnesty rules laid down by their existing military juntas.

To a certain extent, the leaders are right. Foreign investment in Latin America rose during the past decade, largely in response to the perception that the region had gained stability. Macroeconomic indicators for most countries improved, at least until last year’s worldwide financial crisis, which rocked Latin America’s largest economies and fueled a region-wide recession. And figures compiled by the Economic Commission for Latin America and the Caribbean show that the proportion of Latin Americans living in poverty decreased from 41 percent in 1990 to 36 percent in 1997.

Look below the surface, however, and another truth emerges. While percentages are lower, the real number of people living in poverty is higher today than in 1990. And the percentages are only now dropping back to their level of almost 20 years ago, after a sharp rise during the 1980s, which have become known as the “lost decade.”

More important, say many observers, while the percentage of Latin Americans living in poverty is inching downward, the gap between the rich and poor is growing. According to the Inter-American Development Bank, the wealthiest 10 percent of the population receives 40 percent of the region’s income, while the poorest 30 percent shares only 7.5 percent. If Latin America’s income distribution were similar to the worldwide average, bank studies show, the region’s poverty rate would be half the current level.

Inequality in income

“It’s reason for concern, because this inequality in income is a cause of poverty,” said Ismael Muñoz, an economist at the Bartolomé de las Casas Institute in Lima. “To overcome poverty, it’s not only necessary to have economic growth, it’s also necessary to have redistribution policies, especially in taxation and social spending, that tend to decrease the inequalities in income and wealth.”

Inequality of income distribution increased to varying degrees between 1990 and 1997 in Argentina, Brazil, Costa Rica, Ecuador, Panama, Paraguay and Venezuela, but held steady in Chile. The gap narrowed in urban areas of Bolivia, Honduras, Mexico and Uruguay, and in many countries the disparity also decreased in rural areas.

Uruguay has the most equitable income distribution in Latin America, according to the Economic Commission for Latin America and the Caribbean, which attributes this achievement to the dedication of public funds to retirement and pensions, and an infrastructure of social services accessible to all citizens. The poorest 40 percent of Uruguayans receive 22 percent of the income, while the richest 10 percent receive 25.8 percent.

At the opposite end of the scale is Brazil, where the richest 10 percent of the population receives 44.3 percent of the income, while the poorest 40 percent share only 10.5 percent.

Disparity, authoritarianism linked

The problem isn’t only one of economics or even ethics. Various studies have shown that in countries with a greater disparity between the haves and have-nots, there is greater tolerance of authoritarian governments. Thus the income gap becomes a weight dragging at the heels of a democracy that is still incipient in most Latin American societies. Surveys have shown the greatest preference for democracy in Uruguay and Costa Rica, countries with more equitable income distribution, and the greatest tolerance for authoritarian rule in Brazil, Guatemala, Paraguay and Ecuador, where wealth is concentrated in the hands of a small percentage of the population.

The numbers themselves and the plight of the growing number of people like Esther, have been a wake-up call to officials of international financial institutions, which recently did a bit of public soul-searching at conferences around Latin America and admitted that their watertight solution to world poverty -- open markets and austere economic policies -- had finally sunk.

Flush with petrodollars from the oil boom, during the late 1970s and ’80s lenders offered easy credit to less-than-scrupulous borrowers. Some of the money went into the pockets of those in power and some was invested in poorly planned projects. Most economists say that very little, in the end, was invested in programs that really benefited most Latin Americans.

As variable interest rates began to rise, governments were forced to borrow more in order to pay earlier debts, or restructure their economies with assistance from the World Bank and International Monetary Fund, which insisted that countries open their markets, sell their state-run businesses and clamp down on spending.

While the measures stopped hyperinflation (Peru’s inflation, which topped 7,000 percent in 1990, was in the single digits a year later) and eliminated bloated state enterprises, they also swelled the unemployment rolls and opened the floodgates to a deluge of cheap imports with which outdated national industries could not compete.

The immediate result was the “lost decade” of the 1980s, when the proportion of the region’s population living in poverty rose from 35 percent to 41 percent, and those in extreme poverty from 15 percent to 18 percent.

Even as these percentages have inched downward in the 1990s, however, the legacy remains. It is estimated that nearly half of all working Latin Americans are in the informal sector of the economy, eking out a living as street vendors or in other off-the-payroll jobs, with no benefits, social security or safety net. Ironically, the region’s informal economy grew by 4.1 percent last year, while job creation in the formal economy was stagnant.

The growing external debt has contributed greatly to the inequitable distribution of wealth, Muñoz, the Lima economist, said. “Countries have had to raise taxes and reduce spending, and the areas that have suffered most are in social spending, mainly health and education.”

As governments cut back on spending on social programs in order to meet their debt payments, low-income Latin Americans suffered most. According to the Inter-American Development Bank, education is the single best investment for breaking the cycle of poverty. But during the 1990s, many low-income Latin Americans have had to drop out of school to work or take their children out of school.

Debts paid by the people

“The debt isn’t paid by the government,” said Fr. Gregorio Iriarte, an Oblate priest who for years has been writing and teaching about the connection between global economic policies and poverty in Bolivia. “It’s paid by the people through the progressive and serious weakening of social services, especially in education, health care, roads and potable water in rural areas. All of this has been reduced because money has been taken away from it to service the debt. Money to pay the debt hasn’t come out of the pockets of politicians or government officials -- who, on the contrary, make more now than they did before -- but from the people, who have been weakened by it.”

The people, however, are beginning to demand that their voice be heard. The international Jubilee 2000 campaign for debt relief has taken root in a number of Latin American countries, and one promising element is a call for public participation in monitoring of borrowed money and funds freed up by debt-relief programs.

In Argentina, Jubilee has taken the form of Dialogue 2000, an ecumenical campaign sponsored by the Catholic church and the World Council of Churches. In other countries, it has been more an initiative of the Catholic church, which mobilized its resources to collect signatures on petitions that were presented at the meeting of G-7 countries in June in Cologne, Germany. Peru’s Jubilee campaigners collected 1.8 million signatures, more than any other country, while activists in Tarija, a city of 60,000 people in southern Bolivia, gathered 48,000 signatures.

Economists, church people and other activists hope that the awareness raised during the petition drive will now translate into civil society participation on a broader level. International lenders, including the World Bank, International Monetary Fund and G-7 countries, are beginning to speak in terms of poverty reduction, rather than debt “sustainability,” as the goal of their debt-relief measures. Debt activists say this means greater accountability on the part of lenders and the governments that use the money.

Importance of good government

“There will be little benefit from debt cancellation unless there is also involvement of society,” said Ann Pettifor, one of the cofounders of the Jubilee 2000 campaign. “This means strengthening of democratic institutions, this means greater transparency, this means good government. And what form that takes will be different in every country. But we believe that economic health is dependent on democratic health.”

In Bolivia, a small commission of church people and economists is already working with the Ministry of the Economy to monitor the investment of funds that have been freed up by debt relief. Iriarte hopes the commission will expand to include representatives of the labor movement, campesino confederations and the Human Rights Ombudsman’s office.

“This is being done because of conditions set by the IMF and World Bank themselves,” Iriarte said. “Surprisingly, they now are placing a great deal of emphasis on public participation and saying that there must be representation of civil society to guarantee that there isn’t so much corruption and that the funds go directly to fight poverty.”

To Pettifor, this change in the attitude of international lenders is a response to public pressure. Many in Latin America, however, fear the structural changes will come slowly. The large numbers of people laboring in the informal economy are at the greatest risk.

In Lima, where a “taxi” sign on the windshield turns any car into a cab, a 54-year-old business administrator spends 12 hours a day roaming the streets in the family car, looking for fares. He lost his job when the company for which he worked went bankrupt, a victim of Peru’s nagging recession. “I have two kids in college. I have bills to pay. At my age, I have no hope of finding another job,” he said.

If new global lending policies begin to close the breach between the Latin America’s wealthy and impoverished extremes, it is likely to be years before the results trickle down to the taxi driver and the millions of people like him.

“An economic system which leaves huge sectors of society on its margins will always be fragile. A global economic system which leaves huge sectors of the world on its margins will neither be global nor stable,” said Bishop Diarmuid Martin, head of the Vatican Justice and Peace Commission, during a recent visit to Peru. “We’re moving in with this idea of forging the link between debt relief and the fight against poverty into a new model of development which challenges the donor countries, the international organizations and the developing countries themselves. It’s the only model that’s going to work in the long run.”

National Catholic Reporter, January 14, 2000