Rocking back: small business is turning Argentina's natural resources, talent and a weak currency into profits.

Author:Newbery, Charles
Position:Argentina Outlook

Argentine rock band Bersuit Vergarabat is at its hottest since forming in 1988. It sold out 10 nights at tuna Park, a major venue in Buenos Aires. Musical acts like La Renga and Los Piojos are filling even the 70,000-seat River Stadium, something only done before by the major foreign acts like the Rolling Stones and U2.

Bersuit's sound is like what the early 1990s grunge trend was in the United States, says media impresario Mario Pergolini. "[It's] not the music but the movement and the identification young people feel to the music," says Pergolini.

At the heart of this rock revolution, however, is money--people are spending again, even on entertainment. And so it goes across the economy. With foreign products scarce and pricey in peso terms after a threefold devaluation in 2002, "made in Argentina" means something again. Manufacturers have put idle capacity back to work and have stepped up exports to fetch stronger currencies. "It was like somebody pushed the reset button," says Dante Curia, an entrepreneur and packaging businessman.

After a 10.9% slump in 2002, the economy shot up 8.7% in 2003. The LATIN TRADE Consensus Forecast puts the country's growth at a blistering 7.4% in 2004, dropping back to 3.8% next year. Some of the most buoyant companies are smaller ones exporting in greater numbers. Of the nation's 13,700 exporters, 18% of them came into existence after the devaluation, many of them small, according to government data. The rank of small exporters increased 28% in the first half of 2004 to more than 8,000; small companies expect to account for 10% of this year's record US$33.50 billion in exports, according to the government.

Curia in 2002 launched Argentina's first domestic sports drink. So far, Lemon-tire has nabbed 5% of the $24 million market from PepsiCo's Gatorade brand, previously the only one available. Curia expects Lemon-Lite will control half the market in 10 years. That won't be easy. To quicken domestic growth and expand further abroad (he's selling only in Florida and Spain so far), he needs affordable, long-term credit.

Yet private investors remain hesitant; many were burned by the economic collapse of late 2001. The banking system, also hit hard, is struggling to rebuild deposits, so loans are expensive. Without credit, Curia must rely on retained earnings and money from family and friends. Such financing limits growth as it restricts him to word-of-mouth marketing to sell Lemon-Lite. An energy shortage and...

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