Daniela Desantis and Lucinda Elliott
NANAWA, Paraguay (Reuters) – Paraguayan shoppers flocked to the border town of Nanava to buy cheap imports from Argentina, where a weak peso currency has for years kept relative prices low for fuel, medicine and food smuggled across the border. .
Now Nanawa is a ghost town, and prices for contraband have soared thanks to a rare combination in Argentina of nearly 300 percent inflation and a peso that has even risen against the dollar in widely used parallel markets under the leadership of libertarian President Javier Miley.
“Everything used to work very well, we sold everything,” said Martha, 57, a pharmacy employee in Nanawa who wanted to be identified only by her first name. “Now there is nothing left. We’ve been living like this for two months, the city is dead.”
Shopkeepers in Nanawa, 30 km (18 miles) from the capital Asuncion, Reuters estimated sales have fallen 60-80% since Miley took office in December, when he sharply devalued the official peso currency and introduced austerity policies. savings.
Since then, the peso has been allowed to depreciate by just 2% per month under a controlled “creeping peg”, and monthly inflation, although slowing, has been around 10-20% each month. This meant prices soared in dollar terms.
What was worth 1,000 pesos on January 1st would have been worth $1.24 at the official exchange rate that day. Given that April accumulated inflation was 65%, on April 30 the same product would have cost 1,650 pesos, or $1.88, an increase of more than 50%.
This has made Argentina much more expensive in relative terms, prompting analysts to say the peso is overvalued and needs to be devalued again. Meanwhile, tourists and exporters have felt the pressure of less competitive local prices.
“For Argentina, the process is painful,” said economist Gimena Abreu, who analyzes relative prices at the Uruguay-Argentina border at the Catholic University of Uruguay, adding that exports and tourism would suffer in the short term.
Her team’s data shows that the price gap between Uruguay and Argentina fell from 180% in September, when Miley took office, to 50% in March, when relative prices in Argentina rose sharply.
“In the short term, Argentine exports will become less competitive,” Abreu said. Argentina’s main exports include soy products, corn, wheat, beef, energy products and automobiles.
INCREASED PRICES
This has increased costs for ordinary Argentines, hitting consumption. A kilogram of beef cost an average of 2,846 pesos (about $3.70 at a freely available parallel exchange rate) last September, official data shows, much cheaper than the $7 minimum in regional capitals such as Montevideo and Santiago in Chile.
The latest data for April shows that the price of Argentine beef is at
6,505 pesos, almost $7, which pretty much negates the price advantage.
“My relatively comfortable dollar lifestyle has gone to the other extreme,” said Buenos Aires resident Paige Nichols, 37, who moved to Argentina from the United States 17 years ago. “Now I have to be very careful about what I spend.”
Nichols told Reuters her monthly household expenses have increased by about 150% since the December devaluation, mainly due to health insurance, utilities and food.
Products like olive oil and toothpaste become small luxuries. Reuters found that in Buenos Aires, a half-liter bottle of olive oil costs an average of $15, with some brands costing as much as $26. Colgate toothpaste was priced at 4,976 pesos or $5 for one 90-gram tube, twice as much as retailers in Paraguay and Uruguay.
Nichols, who works in the tourism industry, said that at one point, cheap prices for tourists began to match those of regional neighbors and even the United States. She said dining out in Buenos Aires is almost twice as expensive as it was a year ago.
“FEDER PEOPLE ARE CROSSING THROUGH”
Despite this, government data shows tourist arrivals rose in the first two months of the year, although there are signs of strain as prices rise, posing a potential risk to the $3.2 billion worth of travelers brought into the economy last year.
Between January and March 2024, arrivals from neighboring Uruguay, which spent $1.3 billion in Argentina last year, fell 25% from a year earlier, according to Uruguay’s outbound tourism data.
Border towns in Paraguay, Chile and other countries have seen a decline in local demand for imports from Argentina, but others have welcomed the trend, which also means fewer locals are making day trips to Argentina in search of bargains.
“What I will say is that I’ve heard of fewer people crossing the bridge into Argentina to shop,” said Uruguayan cafe owner Lilian, who runs Helianthus Bistro in the border town of Fray Bentos, just across the Uruguay River from Argentina.
“Things are getting more and more expensive there, so there are no more bumper-to-bumper lines of cars crossing the bridge.”
Back in Nanawa, supermarket worker Raquel Alvarenga, 36, said previously rising demand for cheaper Argentine imports meant the store had to expand beyond its doors to cope with the number of customers. Now it was over.
“It was quite devastating. Sales fell by 50%, and this hit trade… Argentine enterprises are constantly raising prices to the skies. They change every day,” she said.
“We used to have to serve people outside because we couldn’t fit everyone in the store. Now we have time to drink (local tea) terere.”