POVERTY DECLINING AT AN EVER-DECREASING RATE

UNCLAS BUENOS AIRES 000852

SIPDIS

PASS FED BOARD OF GOVERNORS FOR PATRICE ROBITAILLE
OPIC FOR GEORGE SCHULTZ AND RUTH ANN NICASTRI
PASS USTR FOR LESLIE YANG
TREASURY FOR RAMIN TOLOUI AND CHRIS KUSHLIS AND OCC
FOR CARLOS HERNANDEZ
USDOC FOR ALEXANDER PREACHER
USDOL FOR ILAB PAULA CHURCH AND ROBERT WHOLEY
SOUTHCOM FOR POLAD AND J5 FOR JUAN RENTA

SIPDIS

E.O. 12958: N/A
TAGS: EFIN ECON ELAB ETRD ALOWAR
SUBJECT: POVERTY DECLINING AT AN EVER-DECREASING RATE

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SUMMARY
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1. According to a recent National Bureau of
Statistics and Census (INDEC) report, the percentage
of people living below the poverty line was 33.8
percent in the 28 most important urban areas of
Argentina during the second half of 2005. The
percentage of people living below the destitution line
was 12.2 percent in the same areas. Poverty and
destitution have been decreasing since the 2002
crisis, when the percentage of people living below the
poverty line reached a peak of 57.5 percent and the
percentage of the destitute was 27.5 percent. The
Embassy expects poverty and destitution to continue to
decline in 2006, but at an ever-decreasing rate. This
is because economic growth will be lower than in 2005
and because the easy employment gains have already
been made. The continued decline in poverty and
destitution will also be slowed by the differential
wage gains between formal, informal and public sector
workers. End summary.

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RECENT FIGURES ON POVERTY AND DESTITUTION LEVELS
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2. According to a National Bureau of Statistics and
Census (INDEC) report released on March 21, the
percentage of people living below the poverty line was
33.8 percent of urban population in the 28 most
important urban areas of Argentina, during the second
half of 2005. The percentage of the poor was 38.9
percent in the first half of 2005, and 40.2 percent in
the second half of 2004. The 33.8 percent poverty
rate represents 7.9 million people that cannot afford
the value of the total consumption basket estimated by
INDEC every month.


3. The percentage of people living below the
destitution line was 12.2 percent of urban population
in the 28 most important urban areas of Argentina,
during the second half of 2005. The percentage of the
destitute was 13.8 percent in the first half of 2005,
and 15 percent in the second half of 2004. The 12.2
percent destitution rate represents 2.8 million people
than cannot afford the value of the food consumption
basket estimated by INDEC every month. However, the
percentage of people living below the destitution line
without considering income supplements (Heads of
Household and similar programs) was 14.2 percent in
the second half of 2005.


4. The sharpest drop in the poverty rate during the
second half of 2005, compared to the second half of
2004, took place in Rio Gallegos, the capital city of
Santa Cruz Province, where poverty decreased from 16.1
percent to 8.9 percent. Posadas, the capital city of
Misiones Province, was the only city in which the
poverty rate increased, growing from 51.3 percent to
53.0 percent in the same period. The percentage of
people living below the poverty line in Greater Buenos
Aires decreased from 37.7 percent in the second half
of 2004 to 30.9 percent in the second half of 2005.

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POVERTY DEVELOPMENT
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5. The poverty and destitution levels have been
decreasing since the 2002 crisis, when the percentage
of people living below the poverty line reached a peak
of 57.5 percent of urban population, and the
percentage of people living below the destitution line
was 27.5 percent. Local economic consultant Artemio
Lopez said that the latest drop in the poverty and
destitution rates was due to the increase in formal
and informal sector salaries, and to the increase in
hours worked, in a context of strong economic growth
and decreasing unemployment. However, economic
analyst Jorge Colina pointed out that poverty is
diminishing at a slower rate than economic growth.
Annual GDP grew 9.2 percent in 2005 and the economy
reached the pre-crisis levels, whereas poverty only
dropped 6 percentage points and is still above the
1990s levels.

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THE LOW MARGINAL CLASS
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6. Economic consultant Ernesto Kritz noted that most
people who have recently risen above the poverty line
belonged to the middle class before 2002 and became
poor during the crisis. Therefore, poverty among
individuals belonging to the low marginal class is
still a structural problem, and is related to high
unemployment and increasing employment in the informal
sector.

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COMMENT
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7. The Embassy expects poverty and destitution to
continue to decline in 2006, but at an ever-decreasing
rate. This is because economic growth will be lower
than in 2005 and because the easy employment gains
have already been made. Future reductions in poverty
and destitution will depend in part on educational
gains and technical training. While there is a
growing demand for skilled workers, there is also a
shortage of skilled workers who are able to take
advantage of these opportunities.


8. The continued decline in poverty and destitution
will also be slowed by the differential wage gains
between formal, informal and public sector workers.
Formal sector workers have used their higher skills
and union associations to secure wage gains above the
rate of inflation. Informal sector workers have
barely been able to secure wages that keep up with
inflation and public sector workers have fallen
behind. This means that the informal and public
sector workers (including pensioners and recipients of
government subsidies) are less likely to rise out of
poverty and destitution, even if they find employment.
This could also work against a better income
distribution, particularly in the provinces, where
growth often occurs along with a worsening of income
distribution.


9. To see more Buenos Aires reporting, visit our
classified website at:
http://www.state.sgov.gov/p/wha/buenosaires

GUTIERREZ