ELDORADO, Argentina (Reuters) - Rumors of layoffs started spreading among workers at a factory here in northeastern Argentina making Nike Inc NKE.N shoes the night before Cristian Fredy Aquino's scheduled shift.

FILE PHOTO: People leave a factory of Brazilian company Dass Group where Nike shoes are manufactured, in Eldorado, Argentina October 24, 2019. REUTERS/Cassandra Garrison

When his key card for the turnstile failed, Aquino realized the rumors were true. The plant was cutting hundreds of workers as orders from the U.S. apparel giant stalled, amid a swirling economic crisis that has plunged the country into recession for most of the last year.

The Nike factory in Misiones province, one of Argentina’s poorest, is proving to be the tip of the iceberg. Around Argentina, nearly 16,000 textile and shoe factory workers have lost their jobs in the last year, according to government data, including nearly a quarter of all shoe sector workers.

And the outlook is darkening: the peso currency has tumbled, interest rates are above 60% and annual inflation nearly 54%.

In this lush jungle town with dusty red-dirt roads, laid-off workers, union delegates and locals Reuters spoke with on a recent trip had one person to blame: President Mauricio Macri, who was defeated outright in a general election on Sunday.

Macri, who came to power in late 2015 as a business-friendly candidate to industry cheers, moved to cut trade barriers, helping bolster overseas ties and increase competition for domestic suppliers. That compounded an unexpectedly sharp economic downturn since last year that has hammered consumer spending inside the country.

At the Nike plant in Eldorado that meant the factory was up against a wave of cheaper imports even as local manufacturing costs got higher. As costs rose, importing finished products became a more attractive option, industry experts said.

“It’s just another job the government is getting rid of,” Aquino said of his first thought upon learning that the owner of the Misiones plant, Brazil’s Dass Group, was cutting workers last December.

Aquino spoke to Reuters on the porch of the modest brick house where he lives with his wife and two children. He said his home was possible thanks to the previous government of Cristina Fernandez de Kirchner, vice-president on the winning ticket on Sunday.

“I worked seven and a half years for the company. With my earnings, I could eat and support my family,” said Aquino, who said he has since taken on an informal job as a driver to make ends meet. “I can’t let my children be in need.”

Nike declined to comment on the reason for cutting back on its orders at the Misiones plant, but said in a statement it “continues to evaluate our sourcing strategy based on seasonal needs and the local marketplace.”

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Representatives from Dass Group, the Brazilian company that runs the factory, and the shoe workers’ union, UTICRA, both blamed the job cuts on a steep 70% drop in shoe orders from Nike, which accounts for nearly all the factory’s work.

The dynamics in Eldorado are a key reason Argentina’s left-leaning Peronists have toppled market-friendly conservative Macri, whose popularity was hit as industries from carmakers to vinters in the country have reeled from falling sales.

“Production is down because of what is happening in the country, a drastic fall in consumption. It’s a reality that is affecting us all,” said Dario Vera, the factory’s delegate for shoe workers’ union UTICRA.

He said the sector had taken a turn for the worse in recent years under Macri's more open-door policies, such as slashing red tape that required importers to seek authorization from the national revenue service. Vera pointed to another factory closure in Chivilcoy near Buenos Aires last December after Nike-rival Adidas AG ADSGn.DE cut back orders.

The union, he said, was now supporting Fernandez, who has pledged to support domestic industry and revive local consumption, and could roll back some of Macri’s free-trade policies to appease powerful worker unions.

HIGH PRICE TO PAY

The malaise in Misiones, a province sandwiched between Brazil and Paraguay, reflects a wider struggle for Argentina’s clothing and textile sectors, which have been hit by a 14.6% drop in retail sales in the first seven months of 2019, according to government data based on shopping mall purchases.

Around the country, the textile and shoe sectors employ 107,000 people, the latest labor ministry data show, down around 13% over the last year. The shoe segment is down 23%.

There were over 1.4 million unemployed people in Argentina in the second quarter of the year, an increase of 200,000 people versus the same period in 2018, government data show.

“With high tax pressure on the sector, plus recession and a very high interest rate, all that combined... means the sector produces less,” said Jose Depena, director of the finance department at the University of CEMA in Buenos Aires.

He said that the mainly small and medium-sized firms which make up the bulk of the sector were very capital intensive, with little automation to cut costs.

That means locally-made clothes often come with a high price-tag in the South American country, which has driven demand for cheaper imports that have risen steadily since 2015, hitting a peak last year of $331 million, industry data show.

“Making textiles here is unbearable because we have so many steps in the middle,” said Gabriel Cures Sastre of Buenos Aires-based trade-focused consultancy GCS Commercial.

“Cutting the fabric, sewing it, doing the glue for the pockets. All of these processes end up as high added-value and the product becomes very expensive.”

‘INDISCRIMINATE IMPORTS’

Vera, the Eldorado factory’s delegate for UTICRA, said in recent years Nike had started importing 20,000 pairs of shoes daily - nearly the same amount the plant once produced. The union has called for rules to avoid “indiscriminate imports.”

“In Eldorado, we are living a complex, sad situation. Being in a city that’s not very big and being away from the big cities is a difficult situation for us,” said Vera.

At its peak, the factory employed 1,500 workers and churned out 23,000 pairs of Nike shoes per day for the domestic market, factory officials said. It was the largest of 12 Nike manufacturers in Argentina, Nike’s own manufacturing map shows.

Now production has dwindled to just 7,000 pairs daily.

Around 400 workers have lost their jobs since the layoffs started in December last year. Another 300 are set to be let go as soon as this week and hundreds more by the end of the year as orders dwindle further, Vera said.

Flavio Eduardo Olea, human resources and labor relations manager at the factory, said the plant was pursuing talks with Nike to stem the decline, but things were looking grim - a reflection of Argentina’s challenge ahead to revive growth.

“The company, with this amount of workers that are left, would be economically unfeasible,” he said.