COLUMN ONE : Latin Job Force Hits the Streets : Unable to find steady employment, as many as 50 million Latin Americans work in the underground economy. Countries lose huge tax revenues, but people at least have incomes.

MEXICO CITY —  The traffic light turns red on the elegant Paseo de la Reforma at the Angel of Independence Monument. Scores of automobiles brake to a halt, and 21-year-old Juan Garcia leads an army of young men into the street.

Weaving his way among the idling cars, Garcia has 75 seconds to sell an oversize, overstuffed toy bulldog before the light changes to green. He is working against time, against Luis Zarate, who is peddling a set of stainless-steel kitchen knives, and against Jorge del Valle, who holds a toy reindeer overhead.

More than a dozen other men and boys are hawking teddy bears, dolls, wall clocks, chewing gum and maps of Mexico. Some are washing windshields and others are juggling oranges, for which they will solicit pocket change from motorists.

“I worked in a paint factory until a year ago, but it paid minimum wage,” Garcia said. “I couldn’t make it on that. Now, if you can find a job as a painter or bricklayer, it’s temporary, for two or three months, and then it’s over. And still it pays minimum wage. Here, I can earn better money.”

Garcia’s is a refrain echoed on street corners and sidewalks throughout Latin America. From Mexico City to Rio de Janeiro and on down to Buenos Aires, the economic crisis of the last decade has produced an explosion of workers unable to find salaried jobs or to support their families on minimum wages--$4.10 a day in Mexico. Instead, they have taken to the streets to “illegally” sell their wares in what is commonly called the underground, or informal, economy.

“Our salaries are very low,” said Edson Carvalho Terto, 24, who hawks goldfish in plastic bags on Uruguaina Street in Rio de Janeiro. “The solution is to work in the street if you have a head and invent something to sell.”

Economists estimate that one-third to one-half of Latin America’s labor force--perhaps 50 million people--now works in the informal economy, a 25% increase in the last decade. These are the men and women shining shoes and grilling tacos downtown, baby-sitting children and sewing piecework for the garment industry out of their homes. They are secretaries who market kitchenware and baked goods on the side, government employees who fix television sets and drive taxis at night.

Unlicensed vendors are the most visible agents of the informal economy, but the vast sector also includes unregistered businesses, construction and land sales, all economic activities that are outside government control and, therefore, are illegal.

Although the economic stagnation of the 1980s has evened out, and many economists predict growth in Latin America through the 1990s, they also expect the informal economy to grow sharply. Latin America’s labor force will increase to 147 million by the end of the century from 107 million this year, according to U.N. experts. Even under the best of circumstances, a formal economy that is modernizing to become internationally competitive will not absorb all those people.

In these unpromising circumstances, many economists and even government officials consider the informal economy to be a vital safety net that has prevented a social explosion in Latin America. They argue that unsteady work is better than no work at all; people otherwise might be starving.

Peruvian economist Hernando de Soto, who did groundbreaking research on the informal economy in Lima, says the sector is made up of people who pursue legal objectives--the sale of legal goods, rather than narcotics--but through illegal means, which makes them “outlaws”: They operate without a license and pay no taxes on the goods and services they sell. No one holds them accountable for the quality of their work. In Mexico, many informal vendors peddle goods imported illegally into the country.

To legitimate or formal business people, the informals are a menace. Because they pay no taxes and have little or no overhead costs, they compete unfairly and undercut prices offered by legal establishments. Sometimes, merchants complain, vendors form a physical barricade with their sidewalk stalls, obscuring stores and their display windows and impeding customers’ access to their doors.

Many streets in Latin American cities now have the appearance of those in Calcutta, with mazes of tables and plastic sheets heaped with tools, electronics equipment, toys and food. Cassette players for sale blare music over the cacophony of hawkers shouting their prices and honking cars trying to inch their way through the press of people.

The newspaper Jornal do Brasil said in an editorial titled “The War of the Sidewalks” that informal street vendors have become one of Rio de Janeiro’s worst urban problems.

“The alternative is a return to order, or the transformation of the streets into an immense, anarchic and uncontrolled Persian market,” the paper said.

But those who labor in the informal economy also pay a price. Working outside the law, they are vulnerable to extortion from police and government bureaucrats. They have no access to credit and, therefore, little chance of building up their businesses. Usually, they cannot buy insurance. And, since theirs are not legal businesses, they cannot be sold.

Although the cash earned by informal entrepreneurs may be greater than minimum wages, they have no benefits: no paid vacations and no access to government medical care, subsidized housing or retirement plans. Often they work 10- and 12-hour days, seven days a week.

“Anyone who is outside the law generally pays more bribes,” De Soto said in an interview from Lima. “Who suffers most from inflation? People who have to keep large cash balances--informals. . . . If you’re informal, you’ve got to remain small. If you’re very visible, the police get to you.”

For Latin American governments, the informal economy represents a huge loss in revenues. For example, a 1988 study of Mexico City’s informal commerce, made by the National Chamber of Commerce, concluded that it was costing the government 500 billion pesos in annual lost revenues--about $225 million at the exchange rate of that time. Former chamber President Jose Maria Alverde Goya estimates the loss to be twice that now.

Governments also lose money from illegal construction, land purchases and manufacturing, as well as from commerce. It is difficult to determine what percentage of a total economy is represented by the informal sector, and the calculation depends to a degree on how the informal sector is defined.

De Soto’s Democracy and Liberty Institute in Lima estimates that the informal economy represents 40% of Peru’s gross domestic product. In Brazil, the figure may be 20%, according to Prof. Nelson Barrizzelli of Sao Paulo University. The Center for Private Sector Economic Studies in Mexico puts the figure in this country at about 35%. Labor specialists based at the Santiago, Chile, offices of CEPAL, the U.N. Economic Commission for Latin America and the Caribbean, place the informal sector at 10% of Latin America’s economy as a whole.

Whatever the numbers, said Fernando Cortes, a sociologist at the postgraduate Colegio de Mexico, “There is an ever-larger contingent of the labor force that is not contributing to the financing of the state, that weakens the state. These people also are on the margins of government services.”

Yet, despite all these drawbacks, officials see some social benefits in the informal economy.

“If these people didn’t have these bad jobs, they would be jobless,” said Jaime Mezzera, an economist working with the U.N. International Labor office’s Regional Employment Program for Latin America and the Caribbean. “It is a mixed blessing--they survive, but they survive poorly.”

Or, as Mexico City vendor Salvador Pulido said, “I’d rather be doing this than stealing.”

Pulido, 33, is a classic example of the new masses of street vendors. He was a mechanic at a Chrysler plant in Mexico for three years before being laid off during cutbacks in 1988. He earned more than minimum wage and had health insurance through the government social security system. He spent seven months looking for another salaried job before borrowing cash from a friend to buy merchandise and set up shop in a four-foot-wide stall on downtown La Palma Street.

“Now, you have to have good friends and contacts to get a good job,” Pulido said, as he and his wife laid out plastic dolls, colored shoelaces and girls’ socks for sale.

Many of the people swelling the ranks of the informal sector are former housewives, grandparents and even children for whom staying at home has become an unaffordable luxury.

“Before, he used to be able to support us, but now we both have to work,” said Pulido’s wife, Guadalupe Flores.

“My brothers are in the United States earning dollars, but I want to stay in my country and work,” Pulido said.

On a good day, Pulido and family can earn $85 from their sales. On a bad day, they may take home $13. Either way, it’s more than minimum wage.

The burgeoning informal trade has deep roots in Latin America. De Soto traces its development to the structural injustices of Latin American economies, which he calls “mercantilist” rather than capitalist. Privileged elites in these countries, De Soto said, have set up powerful obstacles--high fees, complicated bureaucracies and corruption--to keep poor, uneducated people from competing in the formal economy.

There is an element of racism in this, he said, because in many countries, the elites are white descendants of Europeans, while the poor are darker, Indian peasants who have immigrated to cities from the countryside.

The real explosion in the informal sector came in the 1980s, when the region’s economies took a nose dive after 30 years of rapid growth. Where formal sector employment had formerly grown by 5% annually, it grew by only 5% during the entire decade. The labor supply, meanwhile, expanded by almost one-third, to 107 million.

The economic decline was caused by falling prices of many of Latin America’s principal exports--coffee, cotton, sugar, beef and fruit--at a time when the region had accumulated a huge foreign debt. In 1986, for example, 60% of the Mexican government budget went for debt payments.

Mexico has since renegotiated its foreign debt to reduce payments, but at the end of this year, Latin America’s accumulated foreign debt still stood at $423 billion. During the year, the countries paid $19 billion to service the debt, bringing their nine-year total for debt payments to $223 billion.

The debt and falling export revenues created a shortage of foreign currency and hyper-inflation in many Latin countries. This, in turn, prompted governments to reduce spending, lay off state employees and slow their economies. There were fewer jobs to be had, and real salaries fell by as much as 50% in some cases.

Economists disagree over the exact definition of the informal sector, but most exclude clandestine businesses such as narcotics and weapons trafficking. Some academicians define informal workers as those who pay no taxes, while others make the distinction on the size of their businesses.

Economist Mezzera explained: “Nothing is black or white. No one in the economy pays all of their taxes, and none of the informal operators pay no taxes. They pay some kind of tax.”

His point is well made in the case of Mexico, where in 1989, 70% of legally registered businesses declared no taxable profits. The Mexican government has since made an effort to step up tax collections from registered businesses, as well as from illegal importers and street vendors.

For example, in November, police and the army raided 26 warehouses in the Tepito neighborhood, Mexico City’s central marketplace for illegal imports. Scores of workers were detained, and officials said they confiscated 90 trailers full of imported television sets, stereos and other goods. The point, officials say, is that these people must pay tariffs, which have been greatly reduced in the last two years.

This month, police forced several thousand vendors to evacuate the passageways of Mexico City’s subway stations. The vendors were dangerously clogging up the metro, which transports about 5 million passengers daily, city officials said.

One of the ironies of the illegal, informal economy in Mexico is that much of it is organized by the PRI, the ruling Institutional Revolutionary Party. Thousands of vendors are grouped into PRI associations, and the party has a certain amount of political control over them, even if the state cannot collect their taxes.

Vendors organized by the PRI generally have paid for a permit to sell at a fixed street corner or sidewalk and, thus, have legalized their posts. They are not bothered by police or city officials, and in turn, some say, they are required to attend PRI rallies.

The vendors are a potentially powerful political bloc. It is assumed that many of them voted for opposition candidate Cuauhtemoc Cardenas in the 1988 presidential election. The opposition won in Mexico City. Informal workers also are believed to have helped sweep the little-known opposition candidate Alberto Fujimori into the presidency of Peru this year.

In Mexico City, PRI official Roberto Campa said the party is helping 4,000 vendors recently evicted from the subway to negotiate with the city to set up permanent stands outside the metro stops. “The city has made a clear decision to regularize this activity,” he said.

But, in fact, the city--along with virtually all the major Latin cities--does not have the capacity to regularize or legalize all its vendors. The Mexico City Chamber of Commerce estimates there are 112,000 street vendors in the capital, a figure others say may be low. The numbers, it seems, grow every day--so much so that vendors evicted from the Pino Suarez metro station took up positions outside the entrances and exits to make sure that newcomers did not replace them underground.

When asked why they did not legalize their situation, vendors answered either that they could not afford to do so or that there were no legal spots left in areas where they wanted to sell.

“All the good places are gone,” said Juan Carlos Garcia, 30, selling purses from a blanket on the sidewalk. “They would send us to a street where we wouldn’t sell anything.”

Garcia is what permanent, or organized, street vendors call a torero, literally a bullfighter, because he must move fast. As he hawked purses, his cousin, Victor Hernandez, kept watch at the corner for trucks bearing city officials. Four or five times a day, he warns Garcia of their approach, and Garcia sweeps up his merchandise and hides in a storefront or among the street stalls.

If they are caught, they will have to pay a bribe or risk confiscation of their merchandise by the officials.

Alverde Goya of the Mexican Chamber of Commerce believes that many of the vendors could find jobs if they wanted to in foreign-owned assembly plants along the U.S.-Mexico border. They opt to sell in the streets or out of their homes because they can work their own hours, without bosses or “responsibilities,” and they prefer to pay no taxes, Goya said.

He recognizes the difficulties in legalizing a new small business. Despite a government simplification program, business registration still requires 16 bureaucratic steps over a period of about three months, he said. And bureaucrats still take their cut of the pie.

“Although the administrative simplification has been carried out at the upper levels, it changes as the orders filter down. The low-level bureaucrats are the ones who lose income if they don’t get bribes. They are defending their jobs. They complicate a bureaucratic process so that you need their ‘help’ to get out,” Goya said.

Vendors say they are on the street out of necessity rather than choice. For Enrique Najera, 44, survival is the objective. He left his minimum-wage job with the Mexican government a year ago when his salary would no long support his wife and four children. He went to sell in the metro until he was evicted from there.

“Like me, many of these people are former policemen and government workers,” Najera said over a mound of mittens and hats for sale outside the Pino Suarez metro stop. “One salary does not cover our transportation, food, clothes, rent, electricity and everything. This is where we can solve our family problems--selling.”

BACKGROUND

Economists estimate that as many as 50 million of Latin America’s 107 million workers are employed in the underground, or informal, economy. That represents a 25% increase in the last decade. Although economic stagnation has evened out in the region, analysts expect the informal economy to grow sharply as Latin America’s labor force increases to 147 million by the end of the century.