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article imageRe-pricing: a business necessity in Argentina's economic crisis

By Tupac POINTU, Ivan PISARENKO (AFP)     Nov 1, 2018 in Business

Argentina's currency woes may be forcing many businesses to close but for some entrepreneurs today's economic climate has merely turned them into price jugglers in order to keep afloat.

"Every week we get in new stock, but unfortunately for two months now we have been engaging in what I call for fun the 're-labeling festival' -- changing prices," said Fernando Hechtlinger, who recently opened two health food stores.

Some of his merchandise is imported from abroad, making it vulnerable to fluctuations in the peso's value against the dollar, and to red tape.

The 46-year-old opened the first store at the end of last year near Mar del Plata and the second in a wealthy Buenos Aires neighborhood in July.

But this year alone, Argentina has suffered two currency crises that have seen the peso lose around 50 percent of its value against the dollar.

Prices rise so quickly that Argentina's 44 million people have lost a significant part of their buying power.

- Obligatory repricing -

Each time the peso crashed, inflation shot up and is expected to reach 45 percent for 2018.

Argentina's fragile currency poses problems for entrepreneurs like Fernando Hechtlinger as they...
Argentina's fragile currency poses problems for entrepreneurs like Fernando Hechtlinger as they must regularly hike prices to avoided losing money
JUAN MABROMATA, AFP

"It's not good for the customer, either. You have to take the time to explain why" prices have risen, added Hechtlinger, a jack of all trades who previously worked as a screenwriter, creative editor and consultant.

"If I don't re-price, I would have to close. That's the reality because I'd lose my ability to restock."

The peso has recovered a little over the last two weeks on the back of a 56 billion dollar bailout from the International Monetary Fund at the end of September.

But that required drastic economic measures and sky-high interest rates.

"Many things are happening that don't help the economy, families or citizens. It's clear that the current model doesn't help anyone," said Hechtlinger, who comes from a family of Jewish restaurateurs from Bahia Blanca, 600 kilometers (370 miles) to the south of the capital.

However, he said things never got so bad that people couldn't afford to put food on the table.

Changing prices regularly is a risk but one that "works for us," added Hechtlinger, who employs two people in each shop and next plans on opening a health distribution store.

As well as the endless red tape, Hechtlinger has to contend with Argentina's taxes.

Taxes are high  as are interest rates  but some small and medium sized buninesses in Argentina are s...
Taxes are high, as are interest rates, but some small and medium sized buninesses in Argentina are still battling through and making things work
JUAN MABROMATA, AFP

"You can't avoid taxes. Here, in this country, in this context, unfortunately, your main partner is the state. One way or another, 50 percent (of your earnings) go to the state in taxes," he said.

Economist Rodolfo Santangelo from Macroview says the country's interest rates of over 60 percent aren't viable over the long-term and will result in "many small and medium-sized businesses having lots of problems with capital... and finance."

- 'Difficult to predict' -

Federico Veleno, 29, is surrounded by ukuleles in a shared working space in Buenos Aires, looking over his latest shipment from China.

Originally from Portugal, the four-stringed lute was adopted by Polynesians from Hawaii to Tahiti but are now in fashion in Argentina.

Entrepreneur Federico Veleno says it's cheaper to import ukuleles from China than to make them ...
Entrepreneur Federico Veleno says it's cheaper to import ukuleles from China than to make them in Argentina, but that creates other financial problems
EITAN ABRAMOVICH, AFP

It's been six months since Veleno launched Bamboo, his musical instrument brand. The instruments may be made abroad but they are designed by Argentines.

"This first order of 800 were sold in two weeks," Veleno told AFP.

"When we put in the order, the merchandise takes three to four months to arrive.

"With the situation in the country it's difficult to predict our sales."

Two weeks ago a shipment arrived but the peso exchange rate against the dollar had fallen -- from 34 to the greenback to 42 -- between the time deals were made with customers and the stock actually reached Argentina.

"What do we do? Do we sell it at the same price or increase?"

In the end Veleno opted to reduce his profit margin.

In the past, he and his brother tried to have the instruments made in Argentina, but that didn't work.

But despite the problems, Veleno said his country remains a great place to learn how to stay in business.

"In Argentina, you don't know if your pension will suffice, or if you'll be laid off work due to a crisis and find yourself in the street.

"Argentines prefer to rely on themselves."

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