The decision by the new government of President Eduardo Duhalde to let the peso float freely against the US dollar on February 11, 2002 turned round over a decade of economic policy and had profound implications for the leather industry in Argentina. The value of the peso fell immediately to around half the value of the dollar, simultaneously making Argentinean products more competitive while increasing the costs of imports.

For Argentina’s tanners some production costs fell while others rose as much of the machinery and chemicals used in the tanning process are imported and their prices therefore calculated in US dollars. To complete the picture, the price of hides - virtually dollarised - went up immediately.

The crisis came after a period during the 1990s when Argentina’s largest tanneries invested heavily in technology, equipment and training to achieve a solid position as international suppliers. This included the building of modern effluent treatment plants and the pursuit of ISO 9001/9002/14000 and QS-9000 certifications. However, the financial crisis at the end of 2001 came after outbreaks of foot-and-mouth had hit beef exports and footwear companies had been complaining bitterly about cheap Brazilian imports.

Leather exporters suffered directly from the government’s economic mismanagement with debts owed to them for tax rebates. Argentina’s Tanning Industry Association reported last December that tax rebate debts had reached the $40 million mark. This unresolved situation means huge financial costs to companies which, instead of using rebates to produce and invest more, are forced to turn to banks for loans.

Businesses likely to benefit from the recent changes in Argentina are footwear, leathergoods and garment manufacturers. Over the last decade, these companies were effectively put out of business in the domestic market by imports from the Asia-Pacific region and Brazil especially after the 1999 devaluation of the Brazilian currency (R$). Over two thousand shoe, leather-goods and leather garment factories have been forced to close down in the last few years, and over twenty-five thousand direct and indirect jobs were lost.

The government has recently introduced measures designed to alleviate some of the burden for companies with huge debts to local banks. That coupled with the increased competitiveness connected with devaluation could open the international market for small and medium sized companies with exports leading the country towards prosperity.

It may take some time before the changes bring positive results, but the country's leather and allied industries now have all the necessary conditions to rise from the ashes of ten years of bad governmental administration and return the country to its former glory.