The Road To Recovery

ARGENTINA SEEKS A WAY BACK TO ECONOMIC GROWTH.

THE LEXICON OF WALL Street has infiltrated the daily lives of average Argentines. Right between the weather and the horse racing results, Cronica TV, a popular 24-hour news station, broadcasts hourly updates of the riesgo pais--country risk--in blaring, block-white lettering over a red background. There's also a hip, new radio program named after the once-dull economic analysis term.

In the newspapers, talk of bond swaps, bailouts and the dreaded D-words--default and devaluation--periodically rock the faith of Argentina's 36 million consumers. Add to that the constant whirl of corruption scandals, economy cabinet changes at every turn, and a growing wave of social unrest.

Abstractions aside, people feel the country's financial pain. As many as one in five people are unemployed. One of every five federal dollars will go to pay just the interest on public debt this year. And the political establishment remains as out of touch as the Romanovs.

President Fernando de la Ruas popular mandate has evaporated with almost two years left in his four-year term. Economy Minister Domingo Cavallo has taken center stage with a promise to make his 10-year-old Convertibility Plan work. But consumer confidence tumbled since peaking at a far-from-stellar 24.8% in March, when Cavallo was named to his post.

Cavallo's sector-by-sector approach to jump-starting the economy--the so-called "competitiveness plans"--avoids the unpleasant realities of an inflated currency and reckless public spending habits, critics charge. Instead of fine-tuning, they argue, what Argentina really needs is a new motor.

Former President Carlos Menem's reforms in the last decade were deeper than anywhere else in the region. But they have not been enough. As a result, critics who blame Argentina' mediocre economic performance on globalization are getting increasing attention, Mid-term elections fall in October.

With an eye toward what's next in Latin America's third-largest economy, LATIN TRADE profiled several individuals who illustrate the emerging debate. Whoever wins, Argentina clearly needs to do more than just end the year in good standing with its creditors--itself no small feat. The country needs a leader who can restore consumers' faith that tomorrow will be a better day.

EL PADRE DE LOS POBRES

DESPITE A COLD, HEAVY DRIZZLE ON MAY Day, more than 300 unemployed adults and their families lined up for a bowl of locro, a popular stew made of pork, corn and potatoes, in the main plaza of Avellaneda, an industrial suburb on the outskirts of Buenos Aires. "In tough times like this people don't miss the opportunity for a free meal," says Lidia Garcia, who together with her companeras exhausts two oversized cauldrons of the free meal in a few hours.

May Day wasn't always so sad, In better times even the lowliest worker enjoyed the holiday with an Argentine barbecue, or asado. But, in an era in which 40% of Argentine families live below the poverty line, such traditions are a fading memory. Particularly so in Avellaneda. Once known as the Chicago of Argentina for its large number of factories, unemployment is 19% in this working class suburb of 380,000, among the highest in Argentina. Half with a job receive no benefits.

After a decade of living in dire straits, Garcia and her friends have found hope in the Rev. Luis Farinello, head of the fledgling political movement Polo Social, the organizer of the May Day charity event. Since bursting on the political scene earlier this year, he has overturned Argentina's staid political environment.

Tired of protesting from the pulpit, the 64-year-old Roman Catholic priest is running for senator of Buenos Aires province. Despite limited financing, no elected political experience and an unprofessional campaign staff, Farinello has risen meteorically in the polls. Virtually unknown in January, he's now running second in the race for three Senate seats in advance of the October congressional elections, ahead of ex-President Raul Alfonsin.

Donated food and clothes pack his bare-bones political headquarters, which doubles as a foundation responsible for feeding as many as 350 children each day. Starting at 8 a.m., Farinello attends to a long line of visitors. On this day they include the political attache from the U.S. Embassy, a mother with her pregnant daughter and political activists from the faraway province of Jujuy.

"I'll win because people are fed up with taking risks on politicians who promise relief and then end up handing over the patria to the highest bidder," says Farinello between sips of mate, a tea of dried evergreen leaves. "People know I won't sell out."

Farinello's path from priesthood to politician began in the heady revolutionary days of the 1960s, when he entered the clergy as a follower of Liberation Theology, a rebellious ecclesiastic movement that actively participated in the struggles of the poor and oppressed. For his outspoken beliefs the priest spent time in jail during Argentina's 1976-1983 military dictatorship.

Today, Farinello faces a new adversary: Argentina's establishment, which sees him as a political Antichrist. He calls the governing Radical Party and opposition Peronists "friends of the [neo-liberal] model and enemies of the pueblo," inviting comparisons to other recent political outsiders in Latin America. "Because of his charisma and the threat he represents to the main political parties, he occupies a space similar to Venezuela's [President Hugo] Chavez," says pollster Carlos Fara.

As for his political program, other than a promise to remove the "iron corsets" of convertibility and foreign debt payments--two views, ironically, gaining ground among official circles as well--Farinello remains vague. "Our mission is to restore people's hope that the government will defend their interest; the specifics we can debate later," he says.

EL ERROR DE SER ARGENTINO

AT FIRST GLANCE, 71-YEAR-OLD EDUARDO

Bakchellian would seem to have little sympathy for Farinello's army of the unemployed. Head of a leading textile and footwear firm, Gatic, Bakchellian is prominent enough a capitalist that in 1975 he was kidnapped by leftist guerrillas and held hostage for 42 days. His family secured his release by paring a million-dollar ransom.

But globalization makes for strange bedfellows. Started with eight employees and an empty warehouse in 1953, Gatic reached its peak in 1995 with 7,750 employees spread among 15 plants across the country. That same year, Mexico's economic meltdown reached Argentina's shores. Sales stalled. Gatic shelved its plan to go public with 30% of its equity.

Finally, under the weight of US$60 million in debt undertaken to modernize its facilities, the company fell apart, unable to defend its home turf from a flood of cheaper, imported footwear. As a result, the company that was once the No. 2 Adidas licensee in the world has seen its value plummet to less than $20 million from $400 million in 1995.

On the edge of bankruptcy for the past three years, Bakchellian, to his credit, has managed to keep Gatic's 15 plants open and retain 6,500 workers. His competitors, though, haven't fared as well. According to Argentina's footwear industry group, the Camara de la Industria de Calzado, shoe imports have tripled during the last decade, provoking the closure of some 1,500 factories and costing thousands of jobs.

Bakchellian recounts the story of Gatic's impressive rise and depressive decline in a new book, provocatively titled El error de ser Argentino. So, what was his mistake? "Thinking too much of my employees instead of myself," says Bakchellian, whose office window over-looks a budding slum in Buenos Aires province. "Gatic could have made do on 400 employees and become the biggest importer of footwear in the country. But I've never been interested in just collecting money. Maybe I should be,"

Like a lot of struggling industrialists, Bakchellian says the opening of Argentina's economy last decade was too swift and too unorganized to give companies like Gatic a fair chance to compete. "The government promised lower taxes, lower interest rates and lower utility costs but, in the end, all we got were lower tariffs that benefited multinationals and foreign manufacturers," he says. "All we could do to stay in business was cut salaries or lay off workers--that's no choice,"

Bakchellian doubts Argentina could ever compete against slave wages paid in Asia and other parts of the world. Some economic opening is always beneficial, he says, but the government should question the basic principles of free trade in defense of Argentine industry. "The same industrial powers that keep telling us to liberalize trade are the some of the biggest protectionists in history," says the businessman.

He's not alone in his rejection of globalization. A recent poll by Gallup Argentina found that half of all Argentines believe globalization will bring bad consequences for the country, up from 32% three years ago.

THE CANDY MAN CAN

NOT ALL OF ARGENTINA IS UP IN ARMS

over globalization, however. Just ask the 200 new employees of Grupo Arcor, Argentina's leading confectionery group.

At a time when most manufacturers are laying off workers, Arcor recently expanded its payrolls thanks to a new contract with the United States' seventh-largest candy maker, Brach's Confections.

In April Brach's announced it would shut down its near century-old factory on Chicago's struggling West Side and outsource production to Arcor's state-of-the-art plant in Arroyito, Cordoba. Under the $40 million-a-year deal, Arcor will supply Brach's with 30,000 tons of sweets to be marketed under brands like Star-Brite Mints and Mint Patties. Even more impressive than the deal itself is the fact that Brach's selected Arcor over more tempting offers from companies closer to home in Mexico and Canada. So, how did Arcor come out ahead? "When it came to intangibles like reliability and quality, nobody could match them," says Brach's President Kevin T. Kotecki.

Don't call it a trend just yet. But for naysayers who insist that Argentina is too expensive to compete in the global marketplace, Arcor's success is a sharp rebuke. Arcor's exports have soared sevenfold over the past decade to $200 million last year. International sales now account for 35% of its $1.1 billion in revenue. The company's sweets can be found on supermarket shelves in 105 countries, including such non-traditional markets as China, the Middle East and Russia. The company is also a supplier of third-party labels for major retailers like Wal-Mart and Europe's Aldi. "Our marketplace is the world," says CEO Luis Pagani.

Started 50 years ago by Pagani's father, Arcor quickly rose to prominence in the vibrant consumer society brought to life by General Juan Domingo Peron. Unlike most manufacturers, the company didn't bank on its unfettered grip on the Argentine consumer. In 1969, ancient history by the standards of local industry, Arcor sent its first shipment of 80,000 tons of caramels to the United States. In 1976, the company inaugurated its first international factory in Paraguay. Today Arcor operates six plants around the region and 25 in Argentina.

The company built its export success by relying heavily on imported technology which, thanks to Argentina's stable currency, remains affordable. At the sprawling, 78,000-square-meter candy factory in Arroyito, the largest in the world, as much as 200 tons of sweets are produced every day. "Quite frankly, [Arcor] has the capacity and technology to do things we can't," says Brach's Kotecki.

Few Argentine companies have followed Arcor's lead. Despite abundant natural resources, a qualified managerial class and skilled workforce, exports contribute less than 10% to Argentina's gross domestic product. By comparison, exports in Mexico and Chile account for nearly 30% of GDP.

High costs, both real ones and others related to the inflated peso, mean that Argentina is likely never to export its way entirely out of recession, economist say. Still, in a number of sectors--mining, forestry, and organic agriculture for example--attractive opportunities lie dormant. "If you gave Chile half of the resources we have they'd find a way to make fortunes," says Jorge Campbell, a trade expert who served as secretary of international economic relations under Menem. "There's no reason why exports shouldn't be double what they currently are."

COPYRIGHT 2001 Freedom Magazines, Inc.
COPYRIGHT 2001 Gale Group