The single biggest one—and the most obvious way that Argentina is much, much worse off than America—has to do with money. Argentina does not have a modern financial system. Business credit is nonexistent. Only businesses with many years of operating history can qualify for things such as lines of credit or overdraft privileges. Small-business loans are extremely unusual, and it would be crazy to tap credit cards for operating capital: They have low limits and interest rates of up to 45 percent. "It's hard to explain it to Americans, but there is no financing in Argentina," says Patricio Fuks (pronounced fooks), a co-founder of Fën Hoteles. "There are no seed investors. The stock market is so small that if you invested a million dollars, you'd move the market."
I met with Fuks in his palatial office in Buenos Aires. Dressed like a nightclub promoter—a black suit and a black T-shirt—Fuks told me his entrepreneurial story with a mix of pride and genuine wonder that it had even happened. In a span of eight years, he has built a group of 34 four-star and five-star hotels in six Latin American countries, under the brands Dazzler and Esplendor. Together, the hotels, which charge roughly $100 a night per room and take design cues from Starwood's W hotel chain, account for $40 million in annual revenue and employ 700 people.
Fuks grew up in an entrepreneurial family. His father founded a construction company and a small hotel in Buenos Aires, and the family spent summers in New York City, where Fuks says he first got the urge to start something himself. "I realized that I wasn't going to be able to have the kind of life people have in the States—a good house, a nice car, maybe a summer house—if I finished school and went to work for a company," Fuks says. "It wasn't for me." During his sophomore year of college, he dropped out of school and founded an advertising agency.
But by 2001, the advertising work started drying up, and in November of that year, Fuks closed his agency. On December 20, the day the rioting started, Fuks and his wife boarded a ferry to Uruguay. They spent New Year's Eve there, then traveled to Costa Rica and then to Miami. Fuks considered getting a job in Miami, but he couldn't stomach the idea. "I didn't know what to do," he says. "But I was just thinking: A crisis is an opportunity. What's my opportunity?"
Fuks had $25,000 in cash, which he then used to pay off the $200,000 mortgage he had taken on his apartment in 2001. (The devaluation of the peso brought the value of his mortgage down to $50,000, which he was able to pay off by buying bank bonds at a 50 percent discount.) He then scraped together $40,000 from three friends—an enormous amount of money in Argentina in 2002. "Raising $40,000 would have been like raising a million today," says Alejandro Frenkel, Fuks's co-founder and Fën's current CEO. After making a few calls to hotels that had closed over the past year, Fuks found a hotel owner willing to rent him a four-star establishment, the Bisonte, for just $5,000 per month. Labor costs were low, too: The going rate for a hotel manager was just $400 a month. (Today, it's $2,500 a month.) "I figured that if we could rent rooms for $25 at 75 percent occupancy, we'd make $30,000 a month in profit," Fuks says.
Fuks renamed his hotel the Dazzler—he thought the name would appeal to foreign tourists—and ended up renting rooms for just $14 a night. Even so, the hotel was immediately profitable, and Fuks used the earnings to rent another hotel and then a third. By the time the crisis was over, in 2003, Fën was managing five hotels. "It was an amazing time," he says. "I was getting all these hotels. I knew I was never going to see this in my lifetime again." Armed robberies were a monthly occurrence, but Fuks would simply take the loss and keep expanding.
This happened all over Argentina, on scales large and small. The crisis gave entrepreneurs with money the chance to buy assets and hire staff at a fraction of the precrisis cost. "For the top 1 percent of us, the crisis was great," a serial entrepreneur told me. "We had money, our savings were not in the banks, and we were paying one-quarter the salary. Of course, for people with salaries, it was horrible. It was very sad."
Unfortunately, the crisis made starting up much harder for those entrepreneurs who did not have seed capital, says Silvia de Torres Carbonell, a professor of entrepreneurship at IAE Austral, the top M.B.A. program in the country. "We are an entrepreneurial people," says Carbonell, "but the quality of our companies suffers from the context."
As we talked, a dozen or so entrepreneurs whom Carbonell had invited to meet me trickled into the conference room, and the conversation quickly turned into a kvetchfest about the difficulty of raising money. There was the founder who had a term sheet from an American investor canceled after the investor saw something on the Internet about a protest in Argentina; the founder who had given up 80 percent of his company to secure seed capital; and the founder who was so strapped for cash that he had had to raise an angel funding round just to go to a trade show in San Francisco. Toward the end of the meeting, I asked the members of the group how many of them had received some form of bank financing. Laughter erupted. Not a single one had.
A lack of financing is often seen as a cause of economic stagnation, but in Argentina it's more a symptom of something graver: persistent uncertainty and instability. "Money is not the problem," says Zoltan Acs, a professor of public policy at George Mason University in Virginia. "The problem is, Does the country reward people for effort? If the answer is no, nobody will do it."
Acs says that nonprofits like Endeavor Argentina, which provides free legal and accounting advice to entrepreneurs and connects start-ups to more established companies, have helped. But in Argentina, even the most successful entrepreneurs are never entirely sure how safe they are. "I'm more worried than ever," says Susana Balbo, the founder of Dominio del Plata, a $12 million winery in Mendoza that makes some of Argentina's finest Malbec and Torrontés. Balbo is 55, with blond hair and the hearty, weatherworn skin of someone who has spent a lifetime picking through vines. She is also the most successful wine entrepreneur in a booming industry, but she tells me that she often dreams of leaving Argentina, maybe for California or New Zealand. "But I already have everything planted here," she says, with tragic resignation. "So I must continue to the end."
