President Mauricio Macri has struggled to contain runaway inflation and could pay the price in October’s presidential election.
As Argentina gears up for presidential elections next month, small businesses and those working in them are feeling the squeeze during the economic crisis. Their vote for Argentina’s next president could determine the country’s economic path forward - and importantly how the country comes out of a bleak recession.
The shock of the primary election results last month reverberated across the South American nation. Current President Mauricio Macri, who cut subsidies in a bid to open the market, was convincingly beaten by his leftist political rival Alberto Fernandez, who is aligned to ex-president Cristina Fernandez de Kirchner.
The day after the primary elections, the local currency, the peso, lost 25 percent of its value, making daily life more expensive for Argentines. Inflation currently sits at around 54 percent.
“It got really difficult,'' explains Walter Lillo, a 33-year-old Argentine small business owner and entrepreneur who designs websites for clients. “When the economy impacts the life for one person, then it affects life for everyone,” he says.
Walter has experienced a drop in his services and profits are down during the economic slump.
“People are going to become more conservative, to not invest, to not take risks, fearing what may happen this year or the next. They remain cautious, nobody wants to invest, to improve or grow - they want to survive. So of course it’s harder to do business, to get clients - everything just gets much harder,” he says.
Dealing with the economy means having to plan for every eventuality in business. Walter had to create different contracts with clients, factoring in current inflation and predicting future inflation - due to the unpredictability of the peso.
It’s forced him to radically change how he operates. “I have to begin to think in dollars,'' he says.
Dollars in Argentina are considered a stable currency, used in parts of the formal economy, maintaining their value against the Argentina peso - which is considered a volatile currency.
“The Argentine economy is almost a bi-monetry country. The dollar occupies a position like no other economy does, within the developed world,” says Luis Beccaria, an Argentine Research Professor at the Institute of Sciences of the National University of General Sarmiento and Professor of Labour Economics at UBA.
"Here in Latin America when a currency devalues, its effects are limited in terms of prices. [In Argentina] instead, when it devalues by 10 percent, the next day the prices of goods go up by 10 percent,” says Beccaria.
‘Costs are very high’
The devalued currency and high inflation have hit other small businesses across Argentina, making life challenging.
Leandro Correa, 26, works in a factory producing pasta, amongst a few other odd jobs he does to put food on the table. The sense of financial insecurity is a daily reality for him.
“We do suffer a huge deterioration in our salary and earnings,” he says. “The costs are very high and when it comes to budgeting, it is very difficult to find a balance between a decent profit and a good price for the client; so most of the time no agreements are reached and sales cannot be made.”
There has been a 10 percent increase in poverty in Argentina in just over a year. Take a look at why the country's economy is suffering pic.twitter.com/0mrJiTny0a— TRT World (@trtworld) September 20, 2019
According to Beccaria: “It’s not only that inflation brought down real wages which can be linked to entrepreneurship. The drop to real wages also means that total consumption has gone down for small businesses supplying the internal market in the country and the internal market is very deflated”.
After the primary elections, Macri announced plans to delay the country’s debt payments, as well as introducing currency controls in a bid to protect peso against the country’s foreign exchange reserves.
“Macri’s doing exactly what [ex-president] Cristina [Fernandez de Kirchner] did because he has no other option. He’s putting ‘Cepo’ [currency controls] in place, which make things very tough,” says Walter.
Under ex-president Kirchner, doing business abroad and earning for small business in foreign currency was extremely difficult, due to strict currency controls remembers Lillo.
“Previously we wanted to work in dollars, we had to go Western Union, so we could be paid from abroad. There was no other way. We had to do it illegally,” he adds.
The financial situations makes Lillo fearful about a perceived return to a similar tenure of Kirchner, navigating a difficult financial situation - and unable to safeguard his earnings in dollars.
For other Argentines though, the ability to save in dollars is out of their reach.
“I don’t operate with another currency other than the Argentine peso. My earnings don’t allow me to invest and purchase dollars to safeguard my earnings,” says Leandro.
“The government placed high levels of interest to control the dollar, so it doesn’t increase,” according to Beccaria. “Those with pesos encounter high interest, so they don’t buy dollars, they’re incentivised to stick with pesos.”
Fears of new crash
Today in Argentina many fear a potential repeat of 2000-2001 economic crash, known as El Corralito. Many Argentines lost significant savings as the country plummeted into chaos whilst those that could left the country.
But as elections loom on the horizon next month, Argentines are now evaluating the last four years. “Macri’s management of the economy was very poor, he exacerbated the problems that were there,'' says Beccaria.
“What’s happened here is that the increased inflation has affected the earnings of low and middle class sectors of society. Therefore some sectors that had voted for Macri, now won’t vote for him,” he explains.
Markets in Argentina crash after pro-business President Mauricio Macri loses primary election pic.twitter.com/qackeFjD8A— TRT World (@trtworld) August 12, 2019
Walter voted for Macri in 2015, as an entrepreneur, hoping that he would provide economic stability. No he feels disillusioned by the last four years under Macri and by the alternative option - a possible Kirchner government. He says: “I’d vote for Macri because he’s less worse. But it’s horrible to vote like that.”
There will be challenges ahead for the successful government to deal with.
“Whichever government is in charge, it’s going to be very redistricted in what they can do. There is very high inflation, there are limitations in terms of generating dollars and a high demand for dollars to repay the debt which it has to make,” says Beccaria. “The possibility to distribute income, i.e. increasing salaries etc, is going to be limited, because this can increase the process of inflation. It’s a very delicate situation”.
Internationally there are concerns how Argentina may fare.
“My worst fear is the outlook externally, the limitations imposed known as the ‘Cepo’ [currency controls], difficulties selling abroad, difficulties to get paid from from abroad, making it difficult for Argentina to establish a presence internationally when it comes to business,'' says Lillo, who is seeking to expand his business and generate foreign investment.
For others though a return to Peronist or nationalist politics seen under both Cristina Fernandez de Kirchner and her late husband, former president Nestor Kirchner, known as ‘Kirchnerismo’, is considered the best option for Argentina, which is mired by high costs and mounting debt at around $101bn.
“I believe that Argentina is much more than a producer of meats, cereals and soybeans. I hope for bilateral treaties which do not hand over the sovereignty of the country to foreign powers,” says Correa. “If this means closing the economy to strengthen the domestic market, I am willing to make that kind of sacrifice, because I know that it is for the benefit of those who produce here in Argentina.”
Meanwhile other Argentines, are already preparing for the worst.
“I’m thinking about going and I don’t think I’m the only one,'' says Lillo.
“I do not see any favourable future, I believe that what has been achieved in these last four years will go to waste,” says 53-year-old businesswoman Julia Massa, who manufactures belts for a living.
Disenchanted by the current situation in Argentina, Massa is making plans for the future of her family. “My daughter just started university this year, I am supporting my her to leave the country, if Fernandez wins there will be no future for her.”
“I never considered the possibility of moving to another country,” explains Corrrea, who is prepared to endure the financial uncertainty which lies ahead for Argentina.
“If this government continues in power, I will continue trying to change things as far as I can,” he says.