Pablo Torres borrowed money from friends and family in the past six months to prevent his bar in the fashionable tango district of Buenos Aires from going bankrupt. It wasn't enough.
"I've lost everything I built," said 29-year-old Torres in a coffee shop across from the shuttered "H" bar in San Telmo. "We tried everything to tempt people in, and nothing worked. There's just no money out there."
PHOTO:AP
Argentine bankruptcies soared this year, climbing to at least a nine-year high of 153 in May, and may rise further as access to credit shrinks, cutting off financing for companies and deepening a recession, economists said. As businesses fold, tax revenue declines, adding to the government's burden to close the budget deficit and fend off default on its US$130 billion debt.
"Argentina's bankruptcies can't be avoided at the moment," said Rafael Ber, an economist at Argentine Research. "Sales are down, debts are up and interest rates are high. For many small companies there's no way out but to quit."
The government said options for its own financing are dwindling as investors balk at lending to the country. Yields on Argentine Treasury debt and dollar bonds soared to record highs last week on doubts the nation can pay its bills. The 2005 bond fell 2.05 to 61.25, to yield 38.54 percent.
Companies are in a similar predicament. Chemical company Farmataria SA, with US$1.2 million in debts, and meat processor Frigorifico Doina SA, which owed US$16.8 million, filed for protection from creditors, according to a government Web site.
"Most of these [bankrupt] companies have been in trouble well over a year and couldn't sustain it any longer," said Marco Lavagna, an economist at Fundacion Ecolatina. "They have a choice: continue losing money or seek bankruptcy." Soaring interest rates have choked credit for companies, and may push even more companies into bankruptcy. Prime lending rates, or the rates banks charge their best clients, soared to 25.13 percent for 30-day loans in dollars last Thursday, double the rate at the beginning of the month. The soaring rates ensure Argentina is not likely to pull out of a three-year recession any time soon.
Torres said he can't afford a bank loan to pay his debt.
"I've laid off eight workers, I can't pay my phone, gas or electricity bills and I owe the property owner thousands of dollars in back rent," said Torres, who by contract must pay rent in dollars. "I can't afford a bank loan."
Small businesses aren't the only ones on the brink. Lineas Aereas Privadas Argentinas SA, the country's No. 2 carrier, filed in early May for protection against creditors it owes US$79.9 million, not long before the nation's flagship airline Aerolineas Argentinas SA did the same on its US$900 million debt.
The failure of companies threatens to increase the country's unemployment rate, which government estimates put at more than 16 percent in May. The Labor Ministry is slated to release data this week.
The prospect of losing jobs led workers at Balcarce SA, which has been making Argentina's famous alfajor cookies for 50 years, to take to the streets to protest the likely closure of the company.
Balcarce, located in the coastal city of Mar del Plata, is paying its 300 workers 85 percent of their salaries, though has no plans to layoff workers yet, said Rodolfo Martijena, industrial relations director.
"Balcarce has had problems since 1997," he said. "The recession has really hit sales and complicated an already difficult situation." "Our principal creditor is the tax agency and we're hoping to restructure the debt and lengthen its maturity. We haven't had an answer yet." He declined to say how much the company owes in back taxes.
Another company nearing bankruptcy is dairy company Cooperativa de Tamberos de Rosariom, which owes Scotiabank Quilmes, Banco de la Nacion SA and Banco SA Bisel some US$11 million. Cotor, which sells milk products to another Argentine co-operative, Sancor, said it has asked its 200 employees to take voluntary retirement.
"We have to restructure our debt. That's the agreement with the creditors," Cotor's president Bernando Arocena said. "We just couldn't survive the drop in sales caused by the state of this country." For some, the plight of people like Torres has been profitable. Debt collector Guillermo Villanueva hasn't seen his business do as well in years. "It's unfortunate for some, but my business has improved 100-fold since the recession began," said the 38-year old debt collector. "I'm contracted by the courts to collect debts from businesses and individuals who've gone bust." That may include Torres. The former dentist who opened the restaurant in 1999 moved back home to his parents' house in La Plata, the capital of Buenos Aires Province, to look for a job to help pay his debts. "I haven't got a clue how I'm going to get out of this."
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