Argentina’s economy contracts in first semester due to coronavirus

Argentina’s economy shrunk 12.9% in the first semester of 2020 compared to the same period in 2019, informed the State Statistics Institute recently. Small Argentine companies to face ‘terrifying’ future even after debt deal with the creditors.

COVID-19 has hit hard on Argentina’s production and consumption heartland around the capital Buenos Aires, where lockdown measures have been in place since March 20. Sectors like hospitality, dining, textile and construction have suffered the most.

Francisco Luruena’s textile firm on the outskirts of Buenos Aires has survived 39 years of myriad economic crises. Now it stands on the verge of closure, hit by COVID-19 on top of two years of recession, high inflation and a debt crisis.

His company, Rayvis, which has 18 employees and two plants that make acrylic threads, has seen sales tumble and has halted production for months, one of thousands of businesses that are sputtering just as Argentina sorely needs them to revive its economy.

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

Argentina, fresh from clinching an agreement to restructure $65 billion foreign debt, needs firms like Rayvis to pay taxes so it can meet its new obligations to creditors and draw in much-needed investment to the country.

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

“The government went into the pandemic with significant fiscal and monetary imbalances that 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 Argentine small businesses have gone under, despite government rescue efforts, data from the country’s small and medium-sized business association shared with Reuters show, more in six months than in the previous four years combined.

Many such firms, which account for around 70% of employment in Latin America’s No. 3 economy, are falling into bankruptcy, according to a dozen company owners, workers and industry officials around Argentina.

“The small- and medium-sized enterprises that closed had already been enduring an economic crisis since last year - this year they had the chance to move forward or sink completely, and they ended up sinking,” said Daniel Rosato, president of small and medium business industry association IPA. “It was this pandemic that sealed their fate.”

Center-left Peronist President Alberto Fernandez has emphasised the role of smaller businesses in the post-pandemic recovery, and rolled out low-interest loans for firms and funding to help to pay salaries as part of a wider 1.4 trillion peso ($19.9 billion) aid package.

“The No. 1 goal of our administration for the post-pandemic will be jobs creation,” Economy Minister Martin Guzman told Reuters, pointing to policies to boost demand and access to credit.

Santiago Olivera, 43, said he had closed his restaurant ‘Bad Toro’ after being affected by the citywide lockdown, which still only allows food delivery. “The reality is that hundreds of stores are closing every day,” he said, adding he had initially borrowed to keep up with payments but eventually gave up.

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

State support has helped, but Rosato said accessing loans had become increasingly tricky for loss-making companies who had to prove they could repay. In some regions loan programs had also been suspended once lockdowns were lifted.

In oil-rich Neuquen province, some 1200 kilometers (745.65 miles) southwest of the capital, businesses from energy producers to retailers are also struggling, with tumbling oil prices compounding the impact of low domestic demand.

“You go down the street and before the pandemic there was one shop that was closed down per block due to the crisis, now there are three,” said Daniel Gonzalez, President of the Neuquén Chamber of Commerce.

He said emergency government subsidies that paid up to 50% of some salaries with a ceiling of 33,000 Argentine pesos ($451.44) had helped, but didn’t nearly make up for the plunge in sales, while it was hard for companies “already heavily in debt” to borrow more.

Reuters