64 with a plausible primary surplus is about one-third larger. The historical irony is that the forgiveness would be greater after a decade of reform and, for the most part, strong economic growth. The explanation of this paradox lies in the fact that the advent of Eurobonds in the emerging markets capital market that developed in the 1990s, and the very success of Argentina’s post-Brady economy, meant that international markets gave Argentina enough rope to hang itself once again. As set forth at the outset of this study, however, a good case can be made that the outcome of default and subsequent deep forgiveness was by no means preordained, and that the default and forgiveness could quite possibly have been avoided if it had not been for the increasingly virulent interaction of political shocks and market pricing of Argentine sovereign debt.

# _D.  Maintaining the social safety net_

A final major area in which immediate challenges will have to be faced is that of the social safety net. As noted earlier, open unemployment reached 21.5 percent of the urban labor force in the May 2002 survey. Moreover, the incidence of poverty (by the national definition) has reached about half of the population or more, and stands more than twice as high as in 1995 (e.g. UNDP, 2003). Specifically, in the most recent Permanent Survey of Households (October 2002), 57.5 percent of the urban population was identified as being in poverty, comprising 27.5 percent reported as being below the “indigence” line and 30.0 percent additionally below the “poverty” line (INDEC, 2003). It would appear, however, that the Argentine national poverty line is high by international standards.<sup>65</sup> In this context of severe social dislocation from the 3D economic collapse, the government announced in January 2002 that it would launch a social safety net program. By May it had implemented a system of monthly support to Heads of Households declaring themselves unemployed. Approximately 2 million heads of household receive 150 pesos monthly as a direct payment in this program. In principle the program has a work requirement, but it is lax, involving 4 hours per day of participation in community service of some form (loosely enough defined to include such activities as sewing circles) or in training. Some accounts suggest that only about one-third of recipients are working in projects organized by the program. The World Bank, which provides financial support

> 65 The “indigence” line is calculated as the amount of income required to cover a basic food basket (generating 2,700 calories per day per adult male equivalent).  The “poverty” line is based on Engel curve relationships of total consumption to food, and stands at about 2.2 times the food-based indigence line.  For a family of five comprising two parents and three children of 5 years and under, the indigence line in October 2002 was 353 pesos per month, and the poverty line, 779 pesos per month (INDEC, 2003).  At the October 2002 exchange rate, these amounted to $95 and $210, respectively, or about $3 and $7 per day, respectively.  As noted above, in 1999 Argentina’s purchasing power parity income was about 50 percent above its nominal dollar income.  With the steep devalution of 2002, this ratio was probably at least 2:1 by October 2002.  This would seem to imply that the Argentine national poverty line is about $14 per day at international purchasing power parity terms, or about seven times as high as the World Bank’s $2 per day ppp international threshold.  Part of the rise in poverty incidence may be explained by the use of the food basket as the base for the calculation, combined with the impact of the devaluation on the price of food relative to other goods and services.  Agricultural prices are closely tied to world prices and hence the dollar, despite the wedge provided by the export tax.