March 4 (Bloomberg) -- Most days at 6 p.m. Patricia Allende, a 15-year-old schoolgirl, pushes her empty grocery cart onto a seatless train that takes her 20 kilometers (12 miles) from Jose Leon Suarez to downtown Buenos Aires. There she spends several hours picking through trash for cardboard, soda cans and bottles.

``We still rummage like dogs,'' said Allende as she sorted through a bag of rotting meat and lettuce. ``Some of it is good enough to take home and eat.''

Argentina's economy is in a second year of growth after its deepest-ever recession; President Nestor Kirchner is spending 500 million pesos ($171 million) a month on the poor. Yet about 100,000 ragpickers live by combing the capital's streets at night, said Cristina Reynals, a Buenos Aires social worker.

Kirchner, 54, has committed 2.2 percent of gross domestic product to helping Argentina's 18 million poor. By giving them priority over holders of the country's $99.4 billion in defaulted debt he has alienated investors and cut off Argentina from funds the country will need to maintain economic growth and create jobs, said David Dowsett of BlueBay Asset Management in London.

``The economy is functioning without investors at the moment,'' said Dowsett, who manages $1 billion of emerging-market assets. ``But when Argentina needs investment his populist plan will fail.''

Negotiations

Kirchner plans to use an increase in the budget surplus, which last year tripled to 8.6 billion pesos, or 3.3 percent of gross domestic product, from 2.6 billion in 2002, to give more aid to the poor. He says he won't change a September offer to give bondholders $250 per $1,000 of face value of the securities on which Argentina defaulted in late 2001.

``We will not commit to paying something we cannot afford,'' Kirchner said in a speech to Congress on Monday.

Since Feb. 10, when the government named Zurich-based UBS AG, New York-based Merrill Lynch & Co. and London-based Barclays Plc to advise on negotiations with creditors, Argentine bonds have risen on expectations the government may increase its offer. The country's most-traded defaulted bond, the 7 percent bond maturing in 2008, has rallied to about 28 cents on the dollar from 26.6, according to J.P. Morgan Chase & Co.

``The terms aren't acceptable to creditors,'' said Edwin Gutierrez, who helps manage $1.5 billion of emerging-market debt, including Argentine bonds, at Deutsche Asset Management in London.

No Funds

Without a refinancing accord, Argentina won't be able to tap international credit markets for the funds it will need to sustain growth, said Pierre Naim, who helps oversee $90 million of assets, including Argentina government and corporate bonds, at Rainbow Global High Yield Fund in London.

``The government will not be able to raise one cent in the market unless Kirchner solves the current issue,'' said Naim.

Argentina's gross domestic product, a measure of the country's output of goods and services, contracted 18 percent to 235 billion pesos in the four years to the end of 2002.

Kirchner's stance on the debt helped boost his approval rating to a record 81 percent in December, according to a poll by Ricardo Rouvier & Asociados. The former governor of the southern province of Santa Cruz took office last May after taking 22 percent of votes in a first round of elections. Ex-President Carlos Menem pulled out of a runoff after polls showed Kirchner would win 70 percent of votes.

``If we pay more, as we did in the 1990s, it would be a new genocide,'' Kirchner said at a Feb. 11 rally in San Nicolas, an industrial town 180 kilometers north of Buenos Aires. ``It's time for the world to put a brake on the vulture funds and insatiable banks that want to keep profiting from a broken and wounded Argentina.''

White Train

Allende travels in the stripped-out wagons of what Argentines call the ``Tren Blanco,'' or ``White Train,'' run by rail operators to keep trash collectors off their air-conditioned commuter railcars. She makes about 9 pesos ($3) a night after her school day is done and says she has no hope of finding a regular job when she reaches adulthood.

Allende says she wakes at 6 a.m. to attend school near her shantytown home, studies until 2 p.m. and four hours later boards the Tren Blanco with about 1,000 others. She says she rarely gets to bed before 3 a.m. Her home, a cement block and corrugated iron dwelling, is filled with pickings from the streets, including a cassette player and a television set.

Like many of Argentina's garbage gatherers -- known in Spanish as ``cartoneros,'' or cardboard collectors -- Allende, her brother and sister, started scavenging for trash in 2002, a year in which the economy, battered by the debt default, a 70 percent plunge in the peso and a collapse of the banking system, contracted 11 percent.

`Real Jobs'

``A lot of them had real jobs before the crash,'' said Reynals, who is in charge of City of Buenos Aires health and training program for ragpickers.

The government spent about 5.6 billion pesos on aid to the poor in 2003, and plans to increase that to 6.1 billion pesos this year, said Martin Paz, an economist at research organization Secco & Asociados. The aid includes milk for expectant mothers and infants, food, school supplies and overalls for schoolchildren and 150 pesos-per-month cash handouts to heads of families who are unemployed.

Government aid has done little to relieve suffering, particularly among children, said Evelina Chapman director general of social medicine for the northwestern province of Tucuman. The number of children born underweight or who suffer from malnutrition has risen this year, she said.

``You can throw money at people but it doesn't solve the problem,'' said Chapman in a Feb. 26 telephone interview. ``The roots of the problem are still there despite the government's efforts.''

Idle Capacity

Argentina's 8 percent economic growth in 2003 wasn't of much benefit to the poor and unemployed, said Mohamed El Erian, who helps manage $12 billion at Pacific Investment Management Co. in Newport Beach, California. He sold all of his Argentine holdings a year before the default.

Much of the expansion was based on a record soybean harvest by farmers, who employ few hands, and by local manufacturers who were left with idle capacity and underemployed workers after a recession that lasted from late 1998 to early 2003, said El Erian.

In January, factories were running at 66 percent of capacity, according to the government's statistics department.

A decline in the official unemployment rate to 16.3 percent in the third quarter of last year from a record 21.5 percent in May 2002, was due in part to heads of families who receive the government's 150 peso-per-month handout being classified as employed and not because of the creation of new jobs, official statistics show. Without the handouts, the jobless rate in October would have been 21.4 percent, according to the data.

Miguel Ibero, the owner of Bellini SA, Argentina's biggest producer of polyester fabrics for neckties, says he has no plans to take on new workers, buy machinery or expand output even though demand for his products has picked up.

Economy `Sketchy'

``At this stage I don't want to risk it because the economic and political situation is just too sketchy,'' Ibero, 54, said in a telephone interview on Monday from his factory on the outskirts of Buenos Aires.

The lack of job creation means people such as Mario Villar, 48, who was employed as an accountant until four years ago, are resigned to picking through garbage for the rest of their lives.

``We are marginalized from society,'' said Villar, who is married with four children. ``There's no hope for me now, I'm too old to get out of this.''

Villar pays railroad company Trenes de Buenos Aires SA 10.5 pesos for a two-week pass to ride in the Tren Blanco's cars, which have metal bars in glassless windows, broken light bulbs and reek of sweat, urine and marijuana.

Once a week, he and other ragpickers go to scrap yards such as the New Direction run by Pepe Cordoba just outside the city limits. Outside the deposit, which is owned by a cooperative of trash collectors, men line up under the scorching sun as they wait to unload pick-up trucks or wooden carts pulled by bony horses.

Demand for Garbage

Cordoba, 48, says the weight of goods he handles each month has risen more than 20-fold to 300 tons from 14 tons in 2000.

``Before the devaluation we couldn't collect nylon, wool or certain plastics because they were imported, there was no need to recycle,'' said Cordoba, who has been in the business 15 years. ``Now producers are desperate for our refuse.''

Richard Freeman, professor of Labor Economics at Harvard University's Kennedy School of Government, said he sees no quick solution to the plight of Argentina's poor even if the economy continues to grow at the 5.5 percent annual pace the government projects for this year.

Given that, Kirchner is correct in trying ``to protect the people, prevent starvation, reduce poverty and unemployment and prevent riots,'' Freeman said in a telephone interview. ``That all comes before paying the debt.''

Last Updated: March 4, 2004 07:35 EST