Argentina has gone through a majorcrisis in the past year, resulting in severe socialdislocations, and a reduction of welfare by its poorest. Thecollapse of the Convertibility Plan, the freezing of bankdeposits and the default on foreign debts, and the resultinghigh inflation, falling output and exchange ratedevaluation, carried with it severe consequences for thepoor. The break with the Convertibility Plan also meant thatthe adjustment in the labor market, occurred more throughwages, rather than by an increase in unemployment. Inflationreduced real wages substantially, and, unlike previousrecessions, unemployment arose largely from the formalsector, with an increase in employment in the informalsector. Many of the middle class, faced with both decliningwages and freeze on bank assets, moved into poverty for thefirst time, carrying characteristics somewhat different thanthe traditional poor, including higher levels of education.Households appear to cope through a variety of strategies,including the entry into the workforce of those notpreviously employed, and reduced consumption of food, andother products. The Government's response to move to afloating exchange rate, and the consequent reduction in realwages, has provided the basis for a potential recovery. Thereduction in real public sector wages, and pensionobligations with inflation, while nominal revenuesincreased, has temporarily provided for an improved fiscalbalance. The government, however, still faces serious issuesin fiscal, and financial sector management. And Governmentprograms still do not provide an adequate safety net for theunemployed on a permanent basis. Safety net programs arecostly and duplicate other programs. Smaller, inefficientprograms should be combined. Educational services need to bemaintained, particularly with regard to payment of teachers,as the welfare effects go beyond the immediate income levelsof teachers; in the health sector, gradual implementation ofan infant and maternal health insurance, and the definitionof, and agreement on provincial health goals (withmonitorable health indicators) seem to be two key initialsteps towards more effective protection for the uninsuredpoor, including other chronic inefficiencies in the healthsector. Longer term poverty reduction measures includepolicy reforms towards higher levels of employment, accessto basic services by the poor by improving infrastructure,and, improved human capital, and their productivity.
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