Argentina: behind austerity, the recession is spreading in businesses

Behind the fiscal recovery in Argentina, austerity impacts purchasing power but also orders and activity. companies. Biscuits, stationery, pistons… the recession is spreading across all sectors.

Gustavo Avalos lovingly caresses the brand new packaging machines delivered in December, but still wrapped in plastic film.

Tintas Opalo, its SME in Avellaneda (south of Buenos Aires) which produces and packages ink for industrial stamping, is running slowly. Like the order runners.

“Sales had fallen by 70% year-on-year in December,” he reminded AFP. In March, the decline in activity is “only” 40% compared to 2023.

Gustavo Avalos, boss of the Tintas Opalo factory, next to his brand new packaging machines, during an interview with AFP, on April 17, 2024 in Sarandi, in the province of Buenos Aires, Argentina © AFP – LUIS ROBAYO

“The machines can produce up to 8,000 vials per day,” says Mr. Avalos proudly. But due to lack of flow, “in order not to have to fire anyone (among the six employees), we stick to manual bottling”. But “without consumption, we are slowly dying”.

Tossed between decelerating but still dizzying inflation (288% over one year), and devaluation of 54% in December, purchasing power melts, and activity with it.

The economy contracted by 3.2% at the end of February compared to a year earlier. The IMF predicts Argentina a recession of -2.8% in 2024.

– Scrap machine tools –

Large groups stick out their tongues. The Argentine steel group Acindar (2,500 employees), controlled by the giant ArcelorMittal, shut down its five sites for a month, in response to a 35-40% drop in sales.

Inflation in Argentina © AFP – Gabriela VAZ, Patricio ARANA, Gustavo IZUS

The General Motors plant in Santa Fe (1,200 people), which had done the same for three weeks, has just done it again for another week.

Industrial production fell by 19.1% in the first quarter compared to the same period of 2023, according to the Confederation of Medium Enterprises (CAME).

Argentina has more than half a million SMEs, the vast majority of which depend on a sluggish internal market.

A marker among others, sales, or rather liquidations, of idle machine tools. Adrian Mercado, of the eponymous auction firm, assures AFP that sales are accelerating at a frenetic pace.

Small cakes come out of the oven at the Dulcypas factory in La Matanza, Buenos Aires province, on April 17, 2024, in Argentina © AFP – LUIS ROBAYO

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“We make around ten estimates per day, for SMEs that are getting rid of machines, for (cash to) weather the storm. But there are no buyers , and they end up being sold for scrap”, he describes.

Certain SMEs find respite thanks to an outlet, a product. Dulcypas, a mid-range biscuit factory located in Caseros, 25 km from Buenos Aires, is holding on for the moment thanks to its direct sale wafers.

“We are experiencing a very strong adjustment. There is little money, prices are increasing, consumption is decreasing. But wafers sell very well because they are not expensive. Muffins, more expensive, not so much.” explains Fernando Martinez.

Employees of the Dulcypas biscuit factory in La Matanza, Buenos Aires province, April 17, 2024 in Argentina © AFP – LUIS ROBAYO

But Dulcypas, as evidenced by its semi-deserted offices and its two production lines at a standstill, is operating at 50%.

“To maintain profitability, we had to reduce staff (70 compared to up to 120 in the past), lower salaries and volumes”.

However, he maintains faith in the method of Argentine President Javier Milei, convinced that with the drop in inflation “purchasing power will rebound, and the market with it”.

– “Not yet seen the worst”-

The ultraliberal head of state Javier Milei had promised “stagflation” (inflation + recession) and several “difficult” months linked to his shock therapy before a resumption.

An employee of Metalcrom, an SME of metal parts and tubes, in Berazategui, in the province of Buenos Aires, on April 15, 2024 in Argentina © AFP – LUIS ROBAYO

“This is the final stretch of a heroic effort,” he assured Monday, at the same time as he celebrated a budget surplus in the first quarter, for the first time in 14 years .

SMEs at the other end of the chain are less convinced, because they are particularly impacted in terms of employment and wages.

“All we hear is + adjustment, zero deficit, there is no money +” laments Alejandro Bartolini, CEO of Metalcrom, an SME producing metal parts and tubes.

“There is no industrial policy,” says Daniel Rosato, owner of a paper mill (140 employees). “But the other side of the coin is the increase in informal work (…) and therefore less revenue for the State”.

An employee monitors the production line of toilet paper rolls at the Papelera Rosato factory in Berazategui, Buenos Aires province, April 15, 2024 in Argentina © AFP – LUIS ROBAYO

“This is the fourth consecutive month of decline in manufacturing activity and, given the orders in the pipeline, SMEs have not yet hit bottom,” warns CAME.

“I can last a year, then we'll see”, sighs Gustavo Avalos, convinced that “we haven't seen the worst yet, because people have more savings.”

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