Wednesday, May 22, 2024

ECONOMY | 13-04-2024 17:13

Argentina inflation near 300% wipes out tourists’ deep discounts

Surging inflation threatens to crimp a key source of tourism revenue as foreigners opt for other destinations.

Argentina’s surging inflation threatens to crimp a key source of tourism revenue as foreigners who piled US$3.2 billion last year into the country that’s short on dollars opt for other destinations.

Scenes of South Americans pouring in from air, land and sea to take advantage of Argentina’s cheap cost of living in recent years have partly reversed since President Javier Milei took office in December. Now Argentines are lining up to cross the border into Chile as consumer spending plunges at home, while annual inflation accelerated to 288 percent in March, up from 104 percent a year ago. 

Travel reservations in Uruguay to Argentina started to drop in January and are now 50% lower than a year ago, said Gonzalo Rodríguez who runs travel agency Carrasco Viajes in Montevideo. Rodríguez sees the drop influenced by Milei’s 54 percent currency devaluation and narrowing of the difference between the official and parallel exchange rates, a factor that made Argentina very affordable for foreigners but isolated the economy and previous government.

“It becomes a less attractive destination with the gap between the official and parallel exchange rates almost gone and the noticeable rise in prices,” he said. “Argentina is starting to have prices like Brazil, Chile and other alternative destinations in the region.”

In recent years, Argentina had become popular among digital nomads, Russians escaping war and ordinary tourists from neighbouring countries doing grocery shopping, forcing some supermarkets to set purchasing limits after shelves were emptied. For example, visitors from Uruguay, a country of 3.4 million people, spent about US$1.2 billion in Argentina last year.

But since Milei ditched price controls and devalued the currency, many goods in Argentina, when measured in US dollars, have recorded such steep price hikes that it’s no longer a bargain for foreigners.  

A basket of 60 basic goods cost 33 percent less in the Argentine border city of Concordía than in the neighbouring Uruguayan metro area of Salto, down from 64 percent last September, according to a survey by Uruguay’s Catholic University.

Less spending by foreign visitors could widen a tourism services deficit that topped US$1.2 billion last year due to wealthy Argentines’ penchant for international travel offsetting all the incoming tourism. Every dollar counts as the Milei administration rebuilds the central bank’s depleted hard currency reserves to stabilize the economy and speed the flow of badly needed imports.

Tour sales to Argentina, especially shorter trips to Buenos Aires, have fallen as much as 20 percent from a year ago at Montevideo-based Cisplatina Turismo, Chief Executive Officer Laura Leiza said.  

“It’s still cheaper to have dinner in Buenos Aires than in Montevideo,” Leiza said. “But if Argentina starts to get expensive, it will compete with the weather and beaches of Brazil.”

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by Ken Parks, Bloomberg


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