Firms rethink Argentina presence

-------------------------------------------------------------------------------- BUENOS AIRES - With prices slashed by 25%, this crowded Tower Records is a shopper's paradise these days - and the latest bad economic omen for Argentina. Scores of buyers leave clutching favourite CDs like the Argentine rock band Los Fabulosos Cadillacs. But the sale ends soon - when the US retail chain shuts two of its five outlets here and possibly the rest.

Foreign businesses are facing the music in South America's second-largest economy.

As Argentina slips deeper into recession and consumer gloom spreads, multinationals like Continental Airlines, AT-and-T and Wal-Mart are rethinking or scaling back investments here. Others, like Home Depot, are simply riding out the bad economic times, taking the long view.

While there's no mass exodus, the foreign reaction is adding to Argentina's already profound economic worries, underscoring the nation's striking dependence on global businesses for jobs, revenue and stability.

The story is told in the numbers.

US foreign investment in Argentina plunged 30% last year, to $4.5-billion from $5.9-billion in 1999. During the same period, overall foreign investment dropped by more than half to $13.2-billion from $28.7-billion, according to government agency Fundacion Invertir.

Some of the falloff stems from a US economic slowdown that is crimping corporate spending around the world. But Argentina's own actions are to blame as well.

In the early 1990s, Argentina pegged its currency to the powerful US dollar in an effort to halt years of hyperinflation and to bring economic stability needed to attract foreign investors.

At first it worked, drawing billions in outside investment. But when Brazil - Argentina's No. 1 trading partner - devalued its currency in 1999, a dark side emerged to Argentina's currency decision. Its exports became too expensive to sell in Brazil.

Goodyear Tire & Rubber Co. soon closed a plant that had been operating for decades in Argentina, moving it to Brazil. A host of Argentine companies also moved factories there to make everything from shoes to car parts, taking thousands of jobs with them and fuelling an economic slowdown.

The latest shift in strategy by foreign businesses could deepen Argentina's problems. Few outside companies have actually withdrawn from Argentina, but that may change.

Consider Continental Airlines.

The big US carrier has been petitioning US regulators for seven years for the right to enter the Argentine market, one of Latin America's biggest for travellers. But last month, Continental acknowledged that the downturn in Argentina left it no choice but to delay its arrival by at least a year.

"Argentina's economy is a disaster, and hopes for a quick turnaround have been dashed," Continental said in a seven-page filing to the US government.

AT-and-T Corp., for its part, is holding off ambitious plans to expand its telecommunications presence here, which is dominated by two companies, Telefonica of Spain and France's Telecom.

Just last summer, AT-and-T said it would spend $500-million in Argentina as part of a $2.5-billion investment to lay fibre optic cable in 40 Latin American cities and offer the latest in high-speed and wireless communications.

Now those plans are on hold, said Edgardo Lertora, an AT-and-T Latin America vice president. "We are concentrating investment in areas that will provide more profit."

Wal-Mart stores, which has made a big push into Latin American markets in recent years, is holding off on expansion plans until the outlook brightens.

Consumer pessimism is a big reason. Argentines are spending less on everything from cars to clothing - a big turnoff for foreign companies seeking new places to make money.

Some industries are expanding further here, notably oil and natural gas companies, as Argentina continues to supply Brazil and Chile with energy.

And for some foreign-owned companies, there may be a silver lining in an economy that forces people to save money where they can.

Home Depot has opened four stores in Argentina since last year and has won over a growing army of do-it-yourselfers like Juan Torraca, 53, who doesn't have the money to hire a contractor.

Torraca has wanted to remodel the bathroom of his two-bedroom house for more than three years, but he repeatedly postponed the plans because contractors provided estimates that were "out of this world".

"In the crisis, this is the kind of place I'll come back to time and time again," he said at a new Home Depot that opened in Buenos Aires early this month.

Sapa-AP

http://www.bday.co.za/bday/content/direct/1,3523,894162-6078-0,00.html

-- Martin Thompson (mthom1927@aol.com), July 25, 2001

Answers

Argentina and Brazil are so inextricably interlinked, economically, that it looks like they are about to hold hands and go down together.

-- Wellesley (wellesley@freeport.net), July 25, 2001.