COVID-19 and Argentina

Survival potential for businesses and an economy already in crisis

Business modifications, adaptions, and transformations are familiar occurrences for organizations of all sizes and types worldwide. Scaling up or down in response to impacts from consumer behaviors, technology changes, and other forces is typical.

However, there is nothing typical about what has occurred in the face of the COVID-19 pandemic. Consider this:

  • In the second quarter of 2019, Boeing produced 90 planes. In that same period of 2020, production totaled 20 aircraft—a nearly 80% year-over-year decline.
  • Six months ago, Zoom, the video communication tool, had around 10 million daily participants. Fast forward to April, and the company now sees 300 million people meeting participants. That is a shocking 2900% increase.

The virus’s unexpected changes have had an incredibly turbulent and unpredictable impact on Argentina’s economy and Argentine companies. Here, we will look at those effects and consider possible outcomes for the region’s businesses in a world post-COVID.

Examining Economic Impacts During “Total Quarantine”

Measures to combat the impact of the virus on both human and economic health have varied country-by-country. One might think we could correlate the success rates of differing approaches by applying data and hope to see healthy populations with low infection rates in concert with healthy economic data. But the data measures, when held alongside containment measures, seem cloudy in both the rearview mirror and the forward crystal ball view.

Argentina is an example of this dislocation. The country established a national, mandatory isolation period in defense of health, but it has not yet prevented a climb in infection rates and has further paralyzed its economy.

From a macroeconomic perspective, there was a negative aggregate demand shock, a significant drop in production, and a vast unemployment increase. GDP decreases have been sharp in nearly every country.Global Countries in Recession Real GDP Growth H1 2020

Argentina tried and continues to try and stimulate aggregate demand through two main approaches:

  1. Fiscal policy stimulus. Through tax changes, government expenses, and government transfers to individuals and businesses, the country has increased its budget deficit and external debt.
  2. Monetary policy decisions. Actions include reductions in interest, changes in banking regulations, open market operations, and printing more money, which may, in the long-run, create inflation and depreciation of the local currency (the peso).

The Argentine 2019 recession and high inflation have also added complexity to the pandemic’s effects. Additionally, the change in government leadership at the end of 2019 generated new public policies. Even though the new administration delivered an appealing proposal to renegotiate its debt and did manage to lower interest rates (at least to a certain extent), its overall public policy actions still have not yet saved the economy from a downward trajectory.

Competitiveness has also been declining in the last decades. In the 2020 IMD Competitiveness Ranking, which ranks the performance of 63 global economies based on the factors of government and business efficiencies, economic performance, and infrastructure, Argentina finds itself poorly positioned at 62. In contrast, neighboring Chile sits enviably at number 38. Chile leads Latin American countries as the most competitive economy, even though it did not necessarily present well in its 2019 economic performance, having posted a 1% GDP growth.

COVID and Argentina's Economy in Crisis

Nevertheless, all is not lost for Argentina. The IMD analysis reflects below-par performance; the country is well-positioned in the areas of agricultural production, higher education, innovations in scientific pursuits, and its communications and technology infrastructures.

As this article is written in late-August, the country’s COVID-19 health statistics continue to climb, even after more than 150 days in lockdown. The country currently reports approximately 400,000 virus cases since reporting its first case in early-March and just over 8,300 deaths. About 71% of those infected have recovered.

Economically speaking, lockdown restrictions also reduced the production of goods and services. In an economy contracting since July 2018, the first quarter 2020 GDP shrank 4.8% compared to the previous quarter. GDP dropped by 5.4% on a year-over-year comparison to 2019 Q1.

For an already battered economy, nearly five months of stringent quarantine and limited social mobility measures have plunged Argentina into a profound economic stagnation. This situation has many economists anticipating coming historical contractions in industrial and construction sectors, which could deliver other multiplier effects.

What Could Argentina’s Economic Future Hold in an Ever-Foggy Crystal Ball?

The economic future offers multiple possible scenarios, many of which are dependent upon the successful approval of a vaccine that controls the spread of the virus.

A typical Argentine company could experience an external environment with these characteristics:

(a) Recession, if the 2020 GDP drops by more than 10%

(b) A high budget deficit, if the forecasted -8% annual GDP growth comes to fruition

(c) High inflation, of more than 40% for 2020

(d) Significant unemployment

(e) A central bank with scarce reserves will maintain exchange rate controls

(f) Price controls

(g) High tax levels and export duties

(h) Few foreign investments (the country has a poor record as a payer; therefore the country risk is high)

(i) Legal insecurity

(j) Worsening social indicators, such as a poverty rate of 35-40% at the end of 2020, increasing crime, and increasing illegal occupation of private and public land.

The Economist Intelligence Unit forecasts that some countries may return to the GDP growth rates of 2019 at the end of 2022 (Germany), in the second quarter of 2023 (Brazil), or at the end of 2024 (South Africa).  There were no estimations for Argentina, but it will take several years to return to its GDP highs of 2011. Although forecasts could be inaccurate, the data reflects the magnitude and duration of the present Argentine recession.


Nearly five months of stringent quarantine and limited social mobility measures have plunged Argentina into a profound economic stagnation.

Sudden, Unexpected Context Changes Bring Opportunity

In the first few months of the year, several companies around the world that had healthy, successful operations were hit hard by the global health crisis’s economic disruption.

An ideal example is a sudden downturn experienced by hotels, tour companies, and cruise lines across the tourism industry. Carnival Cruise Line, the world’s biggest international cruise company, sold 15 of its 27 ship fleet just this July. The largest Latin American airline, LATAM Airlines, carried 69 million passengers and had almost 43,000 employees in 2019. LATAM applied for bankruptcy protection this May and laid off 12,600 employees since March (which equates to practically 30% of its workforce), and it has also fully exited its operations inside Argentina.

In contrast, within these same short months of early 2020, unexpected opportunities developed as well. Microsoft Teams, which gives employees across the globe a virtual meeting and collaboration space while working from home, had 13 million users per day in July 2019. Its user base has now grown exponentially to 75 million daily active users as of April 30. MercadoLibre, the Argentine e-commerce, and financial technology solutions company, is a Latin American success story. They recently reported significant growth of 123.4% year-over-year revenues, 142.1% in YoY payment volumes, and 101.5% YoY in gross merchandise volume. In COVID’s wake, Latin American consumers quickly pivoted their habits to seek online purchases from MercadoLibre’s marketplace and secure digital wallet services.

COVID and Argentina's Economic CrisisA Lesson in Success from the Argentine Tango

The Argentine Tango is an intricate dance that incorporates a mosaic of footwork. To perform it exceptionally well, dancers must have a physical balance on pivot moves. Comparisons can be drawn to Argentine companies’ ability to survive in a complicated economic situation. They must find and execute their pivot move.

Pivoting to survive in this economic climate means rethinking strategy and making operational changes. Strategies could include revisiting fair value estimates of tangible and intangible assets (especially important following years of high inflation), financial restructuring, or business combinations through mergers or acquisitions. In pursuing these types of strategies, VRG-Argentina is working with companies that are finding new opportunities by adapting to changing consumer behavior, leveraging new or emerging technologies, or changing production logistics.

VRG invites you to contact article author, Rodolfo Biasca, for a more in-depth discussion about Argentina’s economic environment and learn how your company can benefit from our advisory services for your restructuring efforts, business valuation, or M&A deal.

While the case study of COVID-19 and Argentina’s economic crisis is unique, VRG leadership across our worldwide footprint can also offer you their perspective and advisory services unique to your country and business situation. Visit the VRG Leadership Directory or Contact Us today.