Argentina's anxious middle class

To Juan Serres, a good time used to mean a long meal with his family in a Buenos Aires restaurant, if not a long weekend at the beach. Now, the former bank and dotcom official must make do with a trip to the park.

"This is all I can afford," he jokes, lifting the youngest of three sons to the top of a battered slide. These days, he struggles to make ends meet publishing newspaper inserts. His attitude echoes a disillusionment that is spreading throughout Latin America: "I used to be a typically optimistic member of the middle class, but now that middle class is disappearing. And like everybody else, I don't see a solution."

In Argentina, Brazil, and Chile, it was the middle class that ventured out of a long tradition of political and economic nationalism to embrace the promise of international trade, the free market, and democracy.

But now, as a hurricane-force economic slide sweeps across Latin America, the middle class is losing its optimism for the promises of economic liberalization and democracy. In fact, nervous Argentines flocked to banks last week as concerns mounted that the government would freeze bank funds in order to service $132 billion in public debt. To quell a run on banks, the government banned Argentines from withdrawing more than $250 a week in cash and restricted the transfer of funds abroad.

"When it seems change has only left you worse off and living a poorer life, you just want to hunker down - or leave," says Mr. Serres, who counsels his older sons to think about moving to Europe or the United States.

The impact is likely to extend well beyond Latin America's borders.

Over the next few months, President Bush will pull one eye away from the war against terrorism long enough to push for so-called "fast-track authority" to allow his administration to negotiate expanded trade pacts with countries and regions around the world.

But his dream of a free-trade area of the Americas - extending NAFTA throughout the hemisphere by 2005 to counterbalance the growing weight of the European trade bloc - faces roadblocks from a public soured on the promises of free trade.

As economic pain spreads skepticism throughout Latin America, international financial institutions are nervously watching Argentina as it teeters on the brink of the biggest default in history. If a deeply troubled Argentina were to default on international loans and in effect declare bankruptcy, the economic impact on its neighbors and other developing countries would be so deep that the free-trade area would likely be dead, at least for this decade.

"This country has gone through 20 years of restructuring, and ... it hasn't delivered," says Oscar Raul Cardoso, a Buenos Aires political analyst. "The feeling that people have been cheated out of 20 years is very strong, and especially focused in the middle class. Understandably, there's no enthusiasm for anything that suggests more of it."

Adds Marta Lagos, a Chilean pollster, "We're at a crucial moment where people are saying, 'We're back where we were before all the reforms that promised so much.' People don't see the end of the tunnel," she says, "and that's worrisome for democracy and the market economy."

The squeeze is also on in Venezuela, where the oil boom of the 1960s and 1970s that created a new middle class went bust. Even Chile, until recently considered the economic "jaguar" of the continent, is feeling pressed as a slower economy eliminates second jobs, hitting the new two-income families that had raised their living standards.

"From the mid-1980s to 1998 there was remarkable upward mobility in Chile. Jobs were available to young people with a good secondary education, [pulling] them out of poverty and into some level of the middle class - with decent housing, disposable income, and aspirations for still more," says Arturo León, a social economist at the UN's Economic Commission for Latin America in Santiago. "Now, much of that social ascendency is gone - and so is the hope."

During the 1990s, Chile reduced the number of families living in abject poverty by about half, and expanded the middle class to about half the population, Mr. León says. But now, the middle-class pie is shrinking again with every job that disappears.

Even though Chile's economy grew again last year and could continue to expand, it is now typically growth without jobs. "Before in Chile, the estimate was about 40,000 jobs created for every percent of growth," León says. "Now it's not even 10,000."

The middle-class decline is not uniform across the region. More than six years after its economic crash, Mexico started growing again with its beleaguered middle class once again expanding - at least before a recent downturn fed in part by the skidding US economy.

But that expansion began after nearly two decades of middle-class retreat, and also for reasons related to social change. A conservative Mexico, for example, was slower than Argentina to accept a growing female workforce. But now, two-income families and working women are key factors behind Mexico's budding middle class.

A central factor in the stagnant job market is a region-wide retrenchment of the public sector, a traditional bastion of the middle class, as governments privatize services, and in some cases hand pay cuts to public employees.

"It's sad to say, but I get by on my salary because I don't have a family to support, and I live with my mother, who gets a small retirement," says Ana Cladera, a principal of an elementary school in Entrerios, Argentina. "Being in education used to allow for middle-class living. But now I have teachers who have to sell their car to make it, and parents who take their kids out of school so they can work for the family's short-term survival."

A growing number of Latin Americans are blaming democracy for the last decade's unkept promises, says Ms. Lagos, whose polling firm MORI conducted a periodic survey recently.

The survey results showed that, over the past year, faith in democracy as a problem-solving system of government dropped in every Latin American country except Mexico, where it rose 1 percentage point to 46 percent. In Argentina, support for democracy fell from 71 percent last year to 58 percent now; in Chile, from 57 to 45 percent; in Brazil - the hemisphere's largest democracy after the US - from 39 to 30 percent.

The disillusionment so keenly felt in Argentina is leading people to take very different steps from what they might have done in past decades of social activism and even armed rebellion. But the new responses hardly bode well for the region's democracy, experts say.

A loss of faith in collective action, plus a deep public pessimism "mean hardly anyone thinks about activism. The response is more a moving away from public life," says Martin Krause, a political scientist at Buenos Aires' ESEADE graduate business school. "Instead of involvement, people turn to evasion."

That desire to "avoid" or "get away" takes two forms, Dr. Krause says: the symbolic (evading taxes and other legal means of money exchange) or the literal (leaving the country). During the 1990s, the decade when one-fifth of middle-class Argentines fell to the lower class, surveys show a steady climb in the percentage of adults who say they would leave the country if they could - now at 40 percent.

"I see a visa as an insurance policy for the day I've had enough of all this instability," says Lionel Andres Favale, the grandson of an Italian immigrant, who made a trip recently to the Italian consulate in Buenos Aires to apply for an Italian passport.

A computer programmer with a wife and baby, Favale says it is not Argentina's 16 percent unemployment that has him thinking about leaving, but short-term employment. "The jobs in my field are there and I can get them, but they hire you for six, eight months, then it's over. That's no good for the future."

Though an Italian passport would open the door to working anywhere in the European Union, Favale hasn't decided to leave just yet. "It's an insurance policy," he says. "I think it would be painful for my grandfather to hear, because he came to this country with the idea that things would be better for his family in this new country. In a way," he adds, "my going back there would be like saying he wasn't right."