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The Fragile Survival of Businesses in the Short Run
David Steindl-Rast is a Benedictine monk who praises gratitude as a source of happiness and interaction between spirituality and science. He says that when faced with a crisis or when at a crossroads, the following three steps should be taken: 1. Stop. 2. Look around and explore the place. 3. Go, move forward quietly, intelligently and with a feasible strategy.
Published in El Cronista on March 31, 2020
This is the right time to stop the hectic pace of our active life, and analyze the current freeze of activities, knowing full well that this is a mandatory truce from which we cannot escape.
This is the time to create conditions to endure the damages that are unavoidable, and to this end it is indispensable to make a common effort.
The State at the municipal, provincial and national levels must bring unions, NGOs, social stakeholders, companies and entities together to design the resources and means to get to the end of this pandemic and ensure a gradual and slow recovery to repair the serious damage to our public health and people, the economy in general and society as a whole, from where a new global, regional and national economic order will undoubtedly emerge.
The economic and financial catastrophe is inevitable, and this is what all analysts are saying in relation to the deep freeze caused by the quarantine. In the US there are already millions of people who have been laid off and now seek unemployment benefits.
In Spain, more than one million people were laid off for force majeure reasons in just one week, and there are similar figures in France. Italy also has countless cases of work suspension and employment termination. The unemployed expect to be saved by the State thanks to measures of economic and financial aid that are being announced segment by segment. In Argentina it is said that most companies are deciding on work suspension, and only SMEs are terminating employees because they do not have virtually any resources to spare, are unable to follow the rules, and in a very few number of cases severance pay is made according to law.
In Argentina, many companies won’t be able to pay wages for March 2020; during this month workers have worked for twenty days and then the quarantine was imposed on the remaining ten days, and now it has been extended. The increase in the unemployment rate as a result of the pandemic is inevitable, and that is why it is advisable to rely on adequate protection mechanisms to provide for the unemployed.
As to the survival of companies, two stages can be identified to help them get through this crisis within three months minimum, until they can have good margin to begin their reconstruction through minimum genuine economic activity on the horizon.
The first stage is right now: it is crucial to take actions immediately, including for example debt relief or extended deadlines for payment of social security contributions, deferral of taxes already accrued and extended due dates for estimated income tax and VAT. I’m afraid that such measures as loans with low interest rates to pay wages, social security contributions, easy payment terms and others are not actually helping because they create a new debt that will overlap with that already accrued.
In addition to the difficulties arising out of the total or partial freeze of the industrial and commercial activity, there is the expected disruption in the payment chain because most stakeholders in the links of the chain are in default already, or are about to default; they cannot afford to pay their suppliers.
Remember that in general companies must pay wages, social security contributions, payroll taxes to those employees who are working, and non-salary amounts (without social security contributions) to those employees who are in quarantine under Section 223 bis of the Employment Contract Act with paid suspension or in accordance with the Resolutions by the Department of Labor in support of a non-salary payment for those who quarantine without working (Resolution 219 by the Department of Labor), and they must do so without producing, without invoicing and without collecting any monies or with a disrupted payment chain.
In turn employees, independent contractors, the self-employed and entrepreneurs will need support and benefits to mitigate the effects of the crisis, with rent freeze programs, longer deadlines than those initially agreed, deferred payment of taxes, utility rates, interest rates and contributions, extended deadlines for utility charges, longer terms to pay off credit card balances, the prohibition to shut off the electricity, gas or water supply if bills are not paid, and deferred deadlines, reduced interest rates for deferred payments, and many more.
Even those companies that are partially active because they produce essential goods and services will get partial revenues as long as the payment chain is not
disrupted, which is already happening.
If the quarantine is extended repeatedly, the activity will be frozen from now on and for a period of time similar to that found in other comparable experiences, so let’s use the time tunnel and extend deadlines, due dates for social security contributions, loans, easy payment terms until the end of the quarantine so that companies can recover and gradually return to normal.
Reserved forecasts show that the effects of the quarantine will be felt from March 20 until late June, and by mid-June all surviving companies, facilities and activities may slowly begin to recover, even if they lack labor capital for a new start-up, which will undoubtedly be a NEW BEGINNING.
The State is responsible for providing support, setting forth exception rules, imposing deferred deadlines and ensuring utility services and benefits during and after the quarantine to return to normal gradually in an attempt to cause as few damages as possible.