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Top designers abandon Argentina, blaming trade and currency controls for stifling business

Adios, Armani. Hasta la vista, Louis Vuitton.

The world's most luxurious designer brands are abandoning Argentina rather than comply with tight new government economic restrictions, leaving empty shelves and storefronts along the capital's elegant Alvear Avenue, where tourists once flocked to see the latest in fashion.

Kenzo is the latest to go. The Japanese label's owner, Louis Vuitton Moet Hennessy, issued a statement Tuesday blaming Argentina's "complex economic context" for the closure of its store on Oct. 10. Government trade restrictions kept Kenzo from importing its spring and summer clothing lines, store employee Stella Christianopol said.

It joins a long list of top luxury brands pulling out of Argentina: Emporio Armani, Yves Saint Laurent, Escada, Calvin Klein Underwear, Polo Ralph Lauren, Louis Vuitton and Cartier. The labels have become collateral damage as the government tightens its hold on the Argentine economy with measures aiming to encourage domestic production and capture more wealth to aid the poor.

For millions of Argentines it may make little difference: the Louis Vuitton handbags President Cristina Fernandez likes to carry would cost a month's wages for a typical factory worker. But it is leaving hundreds out of work, and critics say it's a symptom of broader problems that are stalling the economy.

"It's a shame because Alvear is betting on becoming like 5th Avenue in New York or the Champs Elysee in Paris," said Constanza Sierra, a consultant with 20 years' experience marketing top name brands in Argentina.

"So this damages the country's image. That's what to me seems the most sad," she said.

Argentina's populist government isn't sweating the loss. Tourism minister Enrique Meyer's response boiled down to a "let them eat empanadas" swipe at the nation's elite. He suggested the labels are overrated and said their departure would have minimal impact on Argentina's economy.

"Louis Vuitton is all over the place," Meyer told Radio Mitre last week. "On the other hand, we have brands that keep on growing," and cited Argentine labels Cardon (leather jackets, purses, and other clothing), Pampero (gaucho-style khaki pants and other sturdy clothing), El Noble Repulgue (meat pies) and Freddo (ice cream).

Most of these brands have little in common with the high-end labels fleeing Argentina, which by their nature are particularly exposed to an ever-tighter combination of import and currency restrictions imposed to protect domestic producers.

Sierra agrees that designer goods are bought by a tiny elite in the country of 40 million, but said "there's a ton of people who are losing their jobs, not only in stores but in advertising and events. There are satellites that surround this."

The fundamental problem is that Argentina's currency is overvalued, said Ramiro Castineira, an economist with the Econometrica consulting firm in Buenos Aires. At 4.7 pesos to the dollar, it's more profitable to import goods than produce them inside the country, he said.

But rather than address this directly, Fernandez put bureaucrats to work holding up import licenses until businesses promise to match the cargo's value by shifting an equal amount of production or investment to Argentina.

The import controls have reduced supplies to Argentine consumers who are desperate to spend or trade their pesos before they lose value, fostering an inflationary spiral and illegal currency trading, Castineira said.

The black market for dollars effectively devalues the peso, which now trades informally at 6.2 or more to the dollar — a steep discount from the official rate, but still better than watching inflation of 25 percent or more a year destroy savings.

In response to the dollar frenzy, the government created still more controls, requiring companies and individuals to get tax agency approval before buying the foreign currencies needed to move money out of Argentina.

Many businesses have managed to find ways of surviving in this climate: Christian Lacroix and Izod Lacoste have opened Argentine factories to finish goods using imported fabrics, and Research in Motion set up a plant where Blackberry smartphones are assembled. Other companies found Argentine goods to export that have nothing to do with their core businesses, but satisfied the demand to foment domestic production.

Designer brands, though, are stuck because they have to import all their products: Escada's fashions are supposed to flow from its headquarters in Luxembourg, after all, and who would buy Louis Vuitton knowing it's stitched in provincial Argentina, rather than some glamorous corner of France?

"Companies that directly import finished products will continue to face difficulties getting those goods to market," Castineira warned. Argentina should be able to maintain a positive trade balance of $10 billion next year given high soy prices, but the government isn't expected to relax its control over the goods flowing in and money flowing out of the country.

The rich will survive, Sierra said: The diminishing number of Argentines with the means to spend their money on high-end fashion can afford to do what the president did: travel to New York or Paris to buy the latest designs.

But a sense of gloom has descended on Buenos Aires' Recoleta neighborhood, where high fashion and luxury hotels have long given Alvear and Callao avenues a European feel.

The situation is so grim that even historic, made-in-Argentina institutions are calling it quits.

"I've got to get out. We've reached the point where commercially this business has nothing more to give," said Alberto Vannucci. In December, he plans to close the shop on Callao where his family has sold hand-stitched leather goods to the world's top polo players for 127 years.

"The economic situation of this country is done for. The good tourism is gone — tourists who come now come to eat lunch and dinner, nothing more. And even this tourism is pulling out, because they're discovering that everything's incredibly expensive," Vannucci said.

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Gustavo Munoz and Roger Dwarika contributed to this story.

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