Small businesses feel pinch as consumers tighten belts

President Mauricio Macri’s government is struggling to stabilise inflation and reassure markets, but Argentina’s small businesses are feeling the pinch in a climate of deep budget cuts and lay-offs.

“There are days when not even one client comes in,” says hair stylist Monica Pesce in the affluent Buenos Aires suburb of Belgrano.

“I came here because of the population density, I’m in a building with 37 apartments, but now everything is down, I have an empty hairdressing salon,” said Pesce.

Pesce pays rent for the premises and also for her home, both subject to twice-yearly increases.

“Anguish and fear” is how she describes the effect of soaring inflation, forecast to reach 27 percent this year.

Buenos Aires last month secured a US$50-billion loan from the International Monetary Fund but the economic outlook for small businesses like hers remains bleak – with suppliers and workforces to pay – and they are the first to feel the pinch of Macri’s IMF-driven austerity drive.

Treasury Minister Nicolás Dujovne is leading efforts to reassure markets that meeting the fiscal deficit remains a priority, but analysts say implementing the necessary budget cuts will be difficult.

Some public service lay-offs, such as those at the national state news agency Télam, are grabbing the headlines, but the effects of the cuts are being keenly felt in the local economy, where small business-owners once rejoiced at Macri’s election in 2015.

OUTSTRIPPING WAGES

Luis Miranda has eight employees at his small bakery in Villa Urquiza, on the northern edge of the capital. In March, he gave them a 15-percent wage rise to keep pace with projected annual inflation. But since then, the peso has lost more than 25 percent of its value, fuelling further inflation.

“I thought the economy was going to improve, as had been the case since this government came in, but in March prices exploded and it never stopped,” Miranda laments.

“This economy is so unpredictable. The price of flour has increased between 300 and 400 percent,” he says.

Unlike Pesce, Miranda says he has kept his customers “but consumption has gone down. Nobody is buying a kilo of bread anymore.”

To compensate, his company is now selling ready-made lunches to construction or office workers in the area.

According to the Argentina Confederation of Mediumsized Enterprises, retail sales have fallen 2.5 percent in the first five months of 2018.

BROKEN PROMISES

Having come to power in 2015, Macri broke with the freespending policies of former president Cristina Fernández de Kirchner, promising to end the perennial scourge of inflation, which has run at over 20 percent for the last decade.

But there is trouble ahead. Argentina ground to a halt on June 25 as public service unions blocked road, rail and air transport with a nationwide 24-hour strike, a shot across the bows for a government intent on toeing the IMF line.

Gerardo Labozzetta’s small factory supplying auto-industry spare parts has been shut down for two years – hit, he says, by a welter of imported products, particularly from China, and the lack of access to bank credit.

“The opening up of imports has hurt productivity,” says the entrepreneur, whose factory provided jobs for 33 people, both directly and indirectly.

Sociologist Ricardo Rouvier says ordinary citizens are becoming angry over broken promises.

“A promise was broken in the short term that there would be an economic recovery. “The polls show a drop in the government’s popularity, and the majority of the population doesn’t see certainty on the horizon that the situation will improve.”