Argentinian small businesses face ‘terrifying’ future even after debt deal

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BUENOS AIRES (Reuters) – Francisco Lurueña’s textile company on the outskirts of Buenos Aires has survived 39 years of a myriad of economic crises. Today it is on the verge of closing, hit by COVID-19 in more than two years of recession, high inflation and a debt crisis.

Santiago Olivera, owner of Restaurant Clara, looks at the saloon during a move, in Buenos Aires, Argentina on July 29, 2020. Photo taken on July 29, 2020. REUTERS / Agustin Marcarian

His company, Rayvis SA, which has 18 employees and two acrylic yarn factories, has seen sales plummet and shut down production for months, one of thousands of businesses that collapse as Argentina has sorely needed to revive its economy.

“Right now it’s the worst moment in the history of the company,” said Lurueña. “I don’t know how much time we have. We received help from friends, family. We are at the limit, practically on the verge of an absolute fault.

Argentina, fresh out of a deal to restructure its $ 65 billion foreign debt, needs companies like Rayvis to pay taxes so it can meet its new obligations to its creditors and attract much-needed investment to the country .

While the debt deal was key to stabilizing the economy, it will be in vain if Argentina cannot revive the growth needed to get out of a deep fiscal hole and replenish drained foreign exchange reserves, said creditors, analysts and officials.

“The government entered the pandemic with significant budgetary and monetary imbalances which effectively forced it to default on its local debt,” said Patrick Esteruelas, head of research at EMSO Asset Management. “Now they face an even bigger problem because of the post-COVID scar. “

In the first half of the year, 28,000 Argentinian small businesses went bankrupt, despite government bailout efforts, according to data from the country’s Small and Medium Business Association shared with Reuters, more in six months than in the past four. previous years combined.

Many of these companies, which account for around 70% of jobs in Latin America’s third-largest economy, go bankrupt, according to a dozen business owners, workers and industry officials in Argentina.

“The (small and medium-sized businesses) that shut down were already experiencing an economic crisis since last year – this year they were lucky enough to move forward or completely sink, and they ended up sinking,” said Daniel Rosato. , president of IPA Small and Medium Business Industry Association. “It was this pandemic that sealed their fate. “

Center-left Peronist President Alberto Fernandez highlighted the role of small businesses in the post-pandemic recovery and put in place low-interest business loans and financings to help pay wages in as part of a larger aid package of 1,400 billion pesos ($ 19.9 billion) pack.

“Our administration’s No.1 goal for the post-pandemic will be job creation,” Economy Minister Martin Guzman told Reuters, highlighting policies to boost demand and access to credit .

“MONUMENTAL CRISIS”

COVID-19 has hit the heart of Argentina’s production and consumption hard around the capital Buenos Aires, where lockdown measures have been in place since March 20.

Sectors such as hotels, restaurants, clothing stores and construction suffered the most.

Santiago Olivera, 43, said he closed his restaurant “Bad Toro” after being affected by the city lockdown, which still only allows food delivery.

“The reality is that hundreds of stores are closing every day,” he said, adding that he initially borrowed to meet payments but eventually gave up.

“If we continued like this we were going to get into more and more debt and it was impossible to maintain the rent, the salaries, the services, impossible to pay for all that with the premises closed.”

State support helped, but Rosato said access to loans had become increasingly difficult for loss-making companies who had to prove they could repay. In some areas, loan programs have also been suspended after blockages were lifted.

In the oil-rich province of Neuquén, some 1,200 kilometers (745.65 miles) southwest of the capital, businesses, from energy producers to retailers, are also struggling, falling oil prices compounding the impact of weak domestic demand.

“You walk down the street and before the pandemic there was one store that was closed in blocks due to the crisis, now there are three,” said Daniel González, president of the Neuquén Chamber of Commerce.

He said emergency government grants that paid up to 50% of some salaries with a cap of 33,000 Argentinian pesos ($ 451.44) had helped, but did not nearly offset the drop in sales, while it was difficult for companies “already heavily in debt” to borrow more.

“I am concerned about the post-pandemic scenario, I think we are in a very complicated situation that will be very difficult to get out of.”

The pandemic has also increased pressure on Argentina’s long-struggling manufacturing sectors – from the low-volume electronics and home appliance manufacturing area to its auto parts industry. The latter has seen 47 companies close since 2019, including 30 this year, according to AFAC, an auto parts industry association.

Only the freeze on workers’ wages and reduced working hours have prevented major layoffs in the home appliance and electronics sector so far this year, said Federico Hellemeyer, head of the industry association.

Federico Cuomo, owner of a company that distributes water fountains, called the corporate vibe “terrifying.”

“Most businesses are debating how to survive,” he said.

The perfect storm of crises left “Argentina Inc” in a weakened state, Argentina’s former economy minister Ricardo López Murphy told Reuters.

“If, in addition to this great fragility, you receive a huge external shock, of course you will have a monumental crisis,” he said.

($ 1 = 73,1000 Argentine pesos)

Reporting by Eliana Raszewski and Marina Lammertyn; Editing by Adam Jourdan, Christian Plumb and Aurora Ellis

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