Coping with economic crisis

1 March 2002

Argentina has been crippled over the past few months by an economic crisis that has toppled the government and led to rioting in the streets. Businesses in the country have had to deal with rapidly changing market conditions including a currency devaluation and control of foreign exchange under a dual rate system. However, Sadesa, one of the world's largest tanning groups based in Argentina, believe the trouble could be short-term and that the Argentine tanning industry will not be seriously affected because of the clear need for exports and the solid foundations of the major operators. Andres Galperin, vice president of marketing and sales at Sadesa, said that his company continued to operate without major problems during the crisis. He also spoke of the need for industry in general to take the lead in creating more jobs, nurturing economic stability and returning Argentina to GDP growth. Galperin said he thought there would probably be negative GDP growth in 2002, and perhaps beyond. Medium-term, however, he said his company remained optimistic due to Argentina's vast natural resources and a clear acknowledgement by all sectors in the country that new jobs must be created urgently. The way to do this, he said, is through activities that really make use of the country's competitive advantages such as tanning, and exports into markets that pay in hard currency. Such an expansion would help create a surplus in the country's current account which, coupled with much tighter fiscal discipline, would in turn help Argentina return to the inter-national money markets. Argentina exports about 85% of its hide and leather production, and the country's devaluation has been fully passed on to the raw material prices. That means that the value in dollars for Argentine raw material has not changed, while the only real advantage to local tanners is the lower labour and logistics costs associated with the devaluation. The crisis might have caused social unrest and real financial difficulties for the people of Argentina, but the lesson from Sadesa is that the best thing for the country is to keep working and look for the positives. Galperin said: 'We are sourcing hides without any problems and chemical products with some difficulties, but with the support of our established supply partners, we are importing all that we need.' The fact that Sadesa have moved some of their production capacity to Asia (Thailand and China), where between five and six million sq ft of leather is produced per month, certainly reduces the company's exposure to the Argentine crisis. Galperin added: 'Our move to Asia, coupled with our plants in Uruguay, Brazil and Paraguay, help us have a more diversified production strategy. However, we are not making changes to our three-year strategic business plan in light of the recent events in Argentina.'

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