December 17, 2008 / 3:21 PM / 10 years ago

Crisis-weary Argentines rein in spending

BUENOS AIRES (Reuters) - Buffeted countless times by economic crises, Argentines are snapping shut their wallets to brace for the worst as a global slump spills over into their economy.

A woman and children beg in downtown Buenos Aires, December 15, 2008. REUTERS/Enrique Marcarian

Auto sales took a dive last month, and people are spending less freely at shopping centers and restaurants as a six-year consumer spending spree slows dramatically.

After five years of booming growth, Argentina’s economy is expected to expand at a still robust rate of around 7 percent in 2008 but it has stumbled in the last couple of months and economists forecast very low growth next year, or even a recession.

“We’re only buying the basics until we see what will happen next year. We’re not buying much clothing, we go out to eat less often. We have set costs we have to pay but we’re trying to be very austere with the rest,” said Veronica Festian, a married woman in her 30s who works at a tourism agency.

“You never know what’s going to happen here, so I prepare for the worst,” Festian said.

Some jumpy Argentines are taking their money out of banks and converting their pesos into dollars to shield themselves from a deposit freeze, such as the one ordered during a 2001-2002 economic depression, or a devaluation.

“I don’t know how much the global crisis will hurt us here, but I’m sure it’s going to be a big blow. The only thing I can do is wait to see what happens — and take every last cent out of the bank,” said Jorge, a 40-something office worker.

Scars from the economic and social crisis seven years ago have not yet healed despite political stability and economic growth averaging 8.8 percent a year from 2003 through 2007.

Consumer spending was a crucial driver of that growth, accounting for about two-thirds of gross domestic product.

Crisis fears have cut consumption but Argentines are also spending less because loans and credit card debt have gotten more expensive, dragging down sales of cars, appliances and even housing.

Automobile sales sank nearly 15 percent year-on-year in November, marking their worst performance since April 2003, and workers in the industry face mounting lay-offs.

Shopping-mall sales, which had generally been growing, suddenly dropped almost 7 percent in October from the previous month.

Jobs are being cut in the construction sector due to slack demand, and growth in industrial production has also slowed.

“Consumer spending is slowing, here and everywhere else. It’s no coincidence that 300 restaurants and bars closed in Buenos Aires in October alone,” political analyst Rosendo Fraga said.


The downturn in spending along with sharply lower prices for Argentine commodities, such as soybeans and corn, spell trouble for 2009, when the government’s debt financing needs will nearly double.

Business blues could worsen if fewer foreign tourists visit Argentina in the coming months, as expected, due to fast-shrinking economies in the developed world.

Center-left President Cristina Fernandez has unveiled subsidized loans for everything from vacations to vehicles in a bid to soften the blow. She also proposed an income tax cut for the country’s highest-paid workers to stimulate spending.

Restaurant and movie-theater owners are offering discounts to attract clients, and clothing stores are launching end-of-season sales before the southern hemisphere summer has even begun.

Some retail outlets are allowing clients to purchase goods in quotas and supermarkets publish page-long advertisements in local newspapers to trumpet their sales offers.

“In the business community we’re seeing some caution, but there’s also a very quick and positive reaction,” said Eduardo D’Alessio, director of D’Alessio Irol consulting group.

“Some companies are taking advantage of this situation to win new markets. They have launched more modest offers and are making inroads outside the capital in places where the biggest firms are absent,” he added.

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Many Argentines think their vast experience with crises gives them an advantage over people in less volatile countries, but psychoanalyst Jose Abadi disagrees.

“Some people might have the fantasy that we’re trained to endure crises and that means we’re less affected. That is magic thinking, which we have plenty of here in Argentina,” he said.

In fact, expecting the worst can accelerate the onset of a crisis, Abadi said. “Catastrophic expectations don’t help, on the contrary, they create a climate of uncertainty and anxiety that makes day-to-day living difficult.”

Writing by Hilary Burke; Editing by Kieran Murray

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