Poverty and the Employment Problem in Argentina

By Gustavo Márquez, Samuel A. Morley (03/97, SOC97-103)

Documents Poverty and the Employment Problem in Argentina (PDF, 125 Kb, En) Poverty and the Employment Problem in Argentina (RTF, 546 Kb, En)
The years since 1980 have been turbulent ones for Argentina. Unable to find a successful strategy to counter a rising debt burden and heavy fiscal deficits, the country suffered a 25 percent reduction in per capita income, two bouts of hyperinflation, and a sharp rise in poverty during the 1980s. In 1990, the Menem government began a profound restructuring of the Argentine economy. A centerpiece of the new program was the Convertibility Plan, designed to control inflation once and for all. Other elements of the program were a control of the government deficit, privatization, reductions in tariff barriers, and social spending reform.

To date, the results of the Menem program have been impressive. Inflation has fallen from 60 percent per month early in 1990 to less than 1 percent in 1995. By 1994, per capita income recovered most of the ground lost in the 1980s. The overall government deficit has shrunk from around 4-5 percent of GDP in the late 1980s to less than 0.5 percent in 1994. Thanks to the Convertibility Plan, fiscal deficits and money creation are no longer a source of inflation. Increasing competitiveness has also paid off in rising exports, despite an appreciation of the real exchange rate. Between 1989 and 1994, exports rose by 10.5 percent per year compared to the previous decade when they rose by only 2.1 percent. This, coupled with the reduction in interest rates and the Brady refinancing of foreign debt, lowered the debt burden (measured as interest payments as a percent of exports) from 50 percent in 1989 to 23.5 percent in 1994.

What was the effect of all these changes on the level of poverty, employment and social equity? This is the question addressed in this paper. The analysis is divided into three parts. In the first one, shifts in poverty and distribution, and their causes are examined. An analysis of the labor market is undertaken in the second part to better understand the increasingly difficult problem of employment and unemployment. In the third part, some conclusions are drawn about the implications of Argentina's experience for the general debate on how to create a sustainable growth strategy that can reduce poverty and unemployment without hyperinflation.

Last updated: 04/26/07