Tuesday, September 17, 2019
Perfil

ECONOMY | 17-08-2019 11:25

Uncertainty weighs large for local business owners

What life at centre of chaos looks like for owners of small and medium businesses.

At Boedo Automotive in Buenos Aires, rows of shiny new cars are for sale. But days after the overwhelming primary election thumping for President Mauricio Macri sent the peso into a tailspin, not a single customer is walking through the door.

Carlos Avoguadra, the shop’s owner, sat behind his desk, ill at ease.

“We woke up on Monday with serious problems, with a skyrocketing exchange rate,” said Avoguadra, a 70-year-old who has been selling cars for more than half his life. “I’ve been through a lot of difficult times, but never like this.”

After two sovereign defaults this century, small business owners in Argentina are well versed in navigating times of crisis. But even they were left floundering by the latest rout this week.

The peso’s historic plunge on Monday translated into overnight losses for some store owners. Others puzzled how much to pay for their basic ingredients. With presidential elections still 10 weeks away, all were left wondering how much worse it can get. Many small business owners already battered by longrunning economic struggles are again feeling bewildered and fearful.

Avoguadra, who has been working in the automotive sector for some 40 years, said he was about to finalise a sale that totaled one million pesos, or the equivalent of about US$20,000 last week. When the peso slumped following the primaries, however, the wholesale dealership he buys from wanted to raise the cost of the car, and the deal fell through.

Avoguadra now contemplates shuttering his business completely amid months of declining returns.

“The idea is maybe to close the shop,” he said melancholically. “Or dedicate myself to something else.”

‘OUT OF CONTROL’

“Argentina is a see-saw that comes and goes,” said Rubén Haleblian, a vendor in a Buenos Aires electronics store.

A plunging peso means goods denominated in dollars soar in price. With the exchange rate in free fall, Haleblian was instructed by the store’s owner to price all products, which are imported, at 62 pesos per dollar. The result was that everything from an SD memory card to a Samsung phone got 40 percent more expensive – and clients walked out the store as soon as he told them the price.

“I’m clawing my way to the end of the month,” he said.

Or take Pablo Ricatti: the company he runs makes buns for hamburgers and hot dogs in Buenos Aires province, but the currency meltdown means he now has no way of knowing what is a fair price for flour. After markets closed, he learned that his supplier had jacked up his price 59 percent from Friday.

“I’m not going to accept that price, it’s way more than the peso depreciation,” said Ricatti, who faces a challenge of his own in deciding what to charge his clients. “We have enough supplies to sell for the next two weeks, and we can hold our prices for the time being,” he said. “But if the peso remains out of control, we’re raising prices.”

Alejandro Nigro, owner of a pasta sales business, said that he is waiting for his wholesale flour provider to let him know about new prices.

“With what just happened, at some point I’ll hear about the price increase. Flour is always bought according to its international price in dollars,” he said.

“When things go crazy, you have to hold on, wait, keep prices as reasonable as you can, reduce [profit] margins,” Nigro said. “And when you can’t withstand it anymore, you have to raise the price. Unfortunately, that’s the way it is.”

ELECTION DISCONNECT

While the result took pollsters and investors by surprise, it reflected popular discontent over Argentina’s direction amid recession, austerity and inflation running at more than 50 percent.

The upshot is a disconnect between the electorate’s preference for a potentially protectionist and interventionist government to help dig them out of economic hardship, and investors’ desire for a continuation of Mauricio Macri’s market-friendly policies to regain the trust of international markets. That divergence risks more economic pain for the foreseeable future.

“The currency’s sudden move is not only damaging to the economy today, but perhaps 2020 won’t be the recovery we had expected,” said Jimena Blanco, research director at Verisk Maplecroft in Buenos Aires. “Investment decisions will be on hold until the second half of next year.”

On the ground, business owners in the downtown area of Microcentro, where boarded-up shops dot the landscape, have resigned themselves to more losses. Rafael Fagenblat, 47, owns a leather goods store downtown and has a workshop in Boedo where he manufactures handbags, belts and jackets. Because leather prices track the dollar, he’s lost about 25 percent on sales he made at the end of last week, as payments were set to be received through a local mechanism of deferred cheques.

On Monday, he kept his peso prices at Friday’s level, even though he knows replenishing stock will be way more expensive. That’s because sales are weak anyway, and there’s no point in hiking prices. Customers are scarce with the economy as it is, and the end of government subsidies mean higher utility prices further adding to his costs.

“I was doing better under Cristina [Fernández de Kirchner],” he said. “Now, my fixed costs keep rising, but sales don’t keep up. Macri didn’t understand our needs.”

Some business owners, like Julian Díaz, who runs three restaurants in Buenos Aires, are conflicted. He’s concerned for customers who can barely make ends meet, but at the same time has had to put plans on hold to open two new restaurants due to the weak economy.

While he’s glad to see Alberto Fernández ahead, he said he hopes the sell-off will stop. “I feel long-term optimism but shortterm concern,” he said.

In this news

More in (in spanish)

Comments

MUSICA

Bambi

"Vuelve a casa"

Ads Space

Ads Space