72 influencing the nation’s public policy to reap the present riches rather than to invest in longterm initiatives (Beattie, 2009). The impact of this decision would be felt throughout the late twentieth century, and into the twentyfirst century, by SME business owners who struggle to keep up with foreign counterparts due to the inability to provide competitive quality and value. When Argentina suffered a significant 15% decline in GDP following the 2001 financial crisis, its SME sector boosted the local economy to keep the country afloat. There was a net increase of 40,000 SMEs as ambitious entrepreneurs saw great potential in creating new opportunities. During this same time frame, the number of businesses incorporated exceeded 80,000, with many steering away from the traditional agricultural and farming sectors and diversifying into industries like software, computer services, office equipment manufacturing, leather manufacturing, and clothing. Rather than holding on to the agricultural industry, sector diversification allowed Argentine entrepreneurs to open new doors. A study in 2010 found that SMEs had hired more than 6 million people, which constituted 73% of Argentina’s salaried employment (Kulfas, 2010). The Issues Despite the tremendous economic contributions that SMEs provide for the country, both existing and potential business owners face countless challenges and high levels of volatility. A review of relevant literature reveals the leading issues are rooted in lack of accessible financial institutions, complex tax regulations, and political uncertainty within the government. Inaccessible Financial Institutions Financial institutions inArgentinaprevent the ability of existing businesses to expand their operations further and disincentivize the establishment of new businesses due to limited credit lines (Martín, 2020). As advocated by the World Bank (2021), access to financial systems is crucial in both emerging and developed countries around the world. It is critical that studies of financial inclusion measure to what degree certain groups are excluded from formal financial systems. In Argentina, only 47.9% of the population has access to a bank account, which is much lower than in Brazil (70%) and Chile (73.8%). Most SMEs in Argentina are owned by lower-class and middle-class individuals, over half of whom do not have a bank account under their name (Kulfas, 2010). Compared to other countries of its size and location, Argentina still has a small and relatively underdeveloped financial market. Since the 2001 financial crisis, Argentina’s financial depth has declined significantly. Also known as credit depth, financial depth captures the financial sector relative to the economy and is found by measuring the domestic credit as a percent of GDP. A study conducted by the InterAmerican Development Bank (IDB) found that Argentina’s credit depth dropped consistently, from63%in 2002 to barely 30%in 2010, roughly half that of the average in the Latin American region, which was 65% in 2010 (Klinger et al., 2013). Although these percentages reflect the entire Argentine economy, it is evident that this barrier has a greater impact on the SME sector than on large corporations—large-sized firms are more likely to be foreign subsidiaries of a multinational firm or have foreign investment support. Argentina levies a 0.6% tax on all financial transactions, including debits and credits to current bank accounts (Caracciolo & Fucinos, 2019). This tax acts as a barrier to financial inclusion, creating incentives to settle payments in cash rather than through bank transfers, further dissuading people and firms from utilizing formal financial institutions. The International Finance Corporation (IFC), a member of the World Bank, found that greater than 70% of SMEs have had difficulties in accessing financing (IFC, 2018). A study conducted to differentiate the disparities in financial institution access found that almost half of SMEs in Argentina identify financing as the most serious obstacle for them (Klinger et al., 2013). The SME sector encompasses 99.8% of the GDP in Argentina, but only around one third of SMEs seek loans from formal banks. This financial exclusion is not primarily attributable to credit rejections, for only 7% of loan applications were rejected in Argentina
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