BY JANE BUSSEY

 BUENOS AIRES -- Rising financial difficulties have plunged Argentina into despair in this bitterly cold winter, but it is the growing number of poor and unemployed -- desperate for handouts of pasta, rolls, sugar and oil -- that has overwhelmed Monsignor Cayetano Saladino at Our Lady of Montserrat Church in the capital.

 ``All these people who don't have food, what's to be done?'' said Saladino, whose Catholic parish donates food, clothing and some medical treatment to some 80 families, a rising number as layoffs and salary cuts widen in this South American country.

 For more than 100 years, Argentina has suffered through chronic cycles of boom and bust, from the period of English investment in the first decades of the last century to the hyperinflation of the late 1980s. But this crisis has probed new levels of despair, with many Argentines complaining that they were not prepared for the misery that has accompanied the past three years of recession.

 One of the most apparent -- and depressing -- manifestations of the crisis are the soup kitchens -- once unheard of -- that have sprung up around Buenos Aires. They feed thousands of adults and children every day, supplementing the swamped government agencies. One of those, Caritas, a Catholic charity, feeds 600,000 daily throughout Argentina.

 In a country where there is no unemployment compensation, there is no safety net for the out-of-work; unemployment is estimated from 16 to 20 percent -- or nearly one out of every five workers.

 ``Buenos Aires used to be another city,'' Saladino said as the sounds of a sobbing mother, looking for diapers for her infant, interrupted in the sanctuary of his church. It is a common complaint among residents of the capital who seem to always look back to a long-ago golden era when Buenos Aires prided itself as the Paris of South America.

 'NO WAY OUT'

 ``We do what we can,'' Saladino said. ``But instead of going forward, this system is going backward . . . For people who are without jobs, it is anguishing because they see no way out.''

 Domingo Cavallo, minister of the economy, who has returned to the post he held in the early 1990s, acknowledges the severity of the situation. ``Think of the economic depression of three years that has affected the Argentine mood, expectations and the state of mind,'' he recently told foreign journalists.

 Still touted as a magician in some world financial circles, Cavallo has increasingly become the target of Argentines beset by the crisis. Three days after announcing
 massive salary cuts for government workers and pensioners, his daughter Sonia's wedding to an American banker became the site of a demonstration. Protesters slashed tires and threw eggs at some of the 500 invited guests, who sipped chardonnay and cabernet sauvignon wines at the banquet that cost $75,000, according to Veintitrés Magazine.

 In addition to the protests and the soup kitchens, there is another major indicator that the economic crisis is provoking desperation -- an exodus that represents a startling change in the way Argentines see their own country. The nation was built by European immigrants drawn to the promise of the new land, but in the last few months Argentines have flooded the Italian and Spanish consulates to regain citizenship or obtain visas. The consulate of the Spanish province of Galicia was overrun in the past week with Argentines who had heard Galicia was issuing work permits.

 The deterioration of the quality of life, as well as the fabric of society, is also seen in the rising violence and crime rate in the capital, once a safe city where the night life never stopped. In one government survey, one in 10 respondents had fallen victim to the recent crime wave.

 AT A BOILING POINT

 The latest economic crisis has been years in the making, but only weeks in coming to a boiling point. The economic boom of the early 1990s -- called the Menem Fiesta after former President Carlos Menem, now under house arrest on charges of illegal arms sales -- was funded with borrowed money or revenue from the one-time sale of privatized state-owned firms.

 Borrowed dollars paid for a budget deficit and a trade deficit. Meanwhile, the currency rate that Cavallo designed allowed the exchange of one peso for $1, implicitly if unwittingly encouraging Argentines to buy and spend dollars abroad -- and the country as a whole to live beyond its means.

 As a result, flights to and from New York, Miami and Madrid are still packed with Argentines even as world financial markets are betting that the country cannot pay its foreign debt.

 Falling prices for grains and other exports, the high cost of doing business in a country with an overvalued currency and other factors finally caught up with Argentina last year. Financial markets would only lend more money at prohibitively high interest rates. All of these factors set the current crisis in motion.

 Late last year, with the support of the Clinton administration, the International Monetary Fund threw together a $40 billion loan program to help the country pay its debt. But two months later, this "financial armor'' had vanished, leaving the country again vulnerable to capital flight and financial speculation.

 The Bush administration has shown no inclination to push a new rescue for a country regarded as profligate. Reflecting the new attitude in Washington, Treasury
 Secretary Paul O'Neill told The Economist magazine: "No one has forced [Argentines] to be the way they are.''

 DRACONIAN MEASURES

 In a last-ditch attempt to save the sinking ship by avoiding default, Cavallo, who returned as economic czar just four months ago promising recovery, has instituted a
 draconian budget-slashing, zero-deficit plan. The plan will put spending on a cash basis, the government restricted to spending only the cash it takes in.

 ``Every cutback this government has attempted has failed,'' said Gabriel E. Rubinstein, an economist with the Buenos Aires consulting firm of Miguel A. Broda &
 Associates.

 ``But in Argentina, a default is almost synonymous with confiscating bank deposits and devaluation,'' he said.

 Hence, savvy Argentines and companies fearing the worst have been withdrawing their bank deposits in order to send them abroad or put under the mattress, in dollars. The country's foreign reserves have fallen by about one-third, or $11 billion, since February. Money kept as reserves for a rainy day for the country is being sent abroad.

 Default, accompanied by devaluation, would be felt sharply in neighboring Chile and Brazil, but the effects could also ripple through world financial markets. The Bush administration is counting on very small effects on Wall Street, but Argentine financiers insist the panic would be greater.

 ``It would be cheaper to help Argentina now,'' Rubinstein said. But the problems of world financial markets have a direct impact on Argentines, where government workers are facing a new round of salary cuts.

 President Fernando de la Rua's own party has balked at approving salary cuts of 13 percent for federal employees who earn under $1,000 a month, about 40 percent of the total.

 The budget slashing can still go forward without congressional approval, but financial markets want a sign of real commitment by Argentina's political class, and so far it has not been forthcoming.

 Cavallo's latest bet is that eliminating the deficit will restore investor confidence and the flow of funds to the dollar-starved economy.

 It is a big wager.

 ``Who is going to survive to witness the revival?'' asked economist and former finance official Eduardo L. Curia, a private consultant who has long insisted along with a few other economists that Argentina's problems stem from an overvalued currency that undermines its competitive performance.

 Devaluation would be traumatic, but it would bring Argentina's costs in line with other world economies, Curia argues. Without devaluation, the country must stumble along in a deflationary process, with salaries and prices coming down at different speeds.

 STAYING THE COURSE

 But Cavallo has insisted that Argentina must stay the course, that his fixed currency scheme cannot be changed. On Thursday, as the ratings agency Moody's took
 Argentine bonds down another notch to the risk level of the Ukraine, Pakistan and Cuba, the minister seemed unfazed.

 ``I am going to help President de la Rua solve Argentina's problems, a problem of depression,'' he declared.

 For some, like Rosendo Fraga, a historian with the Argentine think tank Union for the New Majority, such comments reflect a denial of reality. ``This is the worst crisis of Argentina's history,'' he remarked. ``I tell you that as a historian, because this crisis represents a historic coincidence of three spheres of our life -- political, social, and economic.''

                                    © 2001