Ana Laura Estefania, a 29-year-old Uruguayan, decided to vacation with her family in Buenos Aires last month after the tumble in the Argentine peso made everything from eating out to hotels more affordable.
“We wanted to go somewhere with my parents and all the family,” Estefania, the owner of a publishing company, said by telephone from Uruguay’s capital of Montevideo. “Buenos Aires is close and we thought it would be cheaper because of the exchange rate. Eating is cheap, transport is cheap, accommodation is cheap, everything is much cheaper.”
Like many of the tourists traveling to Argentina, Estefania turned to the illegal black market to take advantage of the peso’s plunge after the nation defaulted in July. There, the local currency costs 74 percent less to obtain than at the official exchange rate. That’s depriving the central bank of the dollars tourists are bringing into the country at a time when its foreign-currency reserves are hovering close to an eight- year low and deepening losses for investors in peso bonds.
While the government said Oct. 7 that the number of overseas travelers soared 21 percent in August from the year earlier, the peso has dropped 3.2 percent in past two months. The slump has pushed losses on peso debt to 6.7 percent in dollars since Argentina defaulted, more than the average 5 percent drop for emerging markets, according to Barclays Plc.
The peso has dropped even more in the black market over the past two months, sinking 16.5 percent to 14.73 pesos per dollar. And in the called blue-chip swap market, where Argentines obtain foreign currency by buying and selling assets in pesos and dollars, the local currency has plummeted 23.5 percent to 13.25 pesos per dollar. That compares with an official rate of 8.47 pesos per dollar.
“The dollar in the parallel market gives you much more than at the official rate and that’s a great incentive to come to Argentina and spend,” Perez Duhalde, an analyst at Buenos Aires-based research company abeceb.com., said in a telephone interview. “Everything becomes much cheaper.”
The increasing gap between the rates has prompted the government to crack down on illegal exchange houses in Buenos Aires and increase pressure on investors to stop trading securities to obtain U.S. currency.
Jesica Rey, a spokeswoman for the Economy Ministry, declined to comment.
In his first meeting with executives from the nation’s biggest international and local lenders, recently appointed central bank President Alejandro Vanoli said he’ll “apply a strict control of foreign exchange rules,” according to a statement from the monetary authority Oct. 6.
Soaring inflation is fueling record demand for dollars in Argentina as a store savings, helping push the nation’s reserves to $27.4 billion.
Siobhan Morden, the head of Latin America strategy at Jefferies Group LLC, estimates Argentina’s cash hoard will fall to $11 billion by the end of 2015, of which $1 billion will be net reserves after subtracting bank deposits and liabilities.
Argentina has “no access to capital markets, commodity prices are suffering a huge shock and there’s huge debt service,” she said by phone.
Argentina defaulted for the second time in 13 years in July, when a U.S. judge blocked payments to bondholders after the nation refused to pay creditors from its 2001 debt crisis.
The surge in tourism after the default was led by visitors from Argentina’s neighbors. The number of tourists from Uruguay rose 47 percent from a year earlier in August, while those from Brazil increased 27 percent in the same period.
Estefania, who was accompanied by her parents and boyfriend, said she brought dollars with her to Buenos Aires that she was able to exchange at a rate of 14.5 pesos per dollar in pharmacies and 13.5 pesos on the street.
Paz Vaeza, a 32-year-old Uruguayan, traveled to Buenos Aires last month to load up on pharmacy products that she said cost a third of what she pays in her home country.
She obtained local currency in the black market at a rate of 15.5 pesos per dollar.
“They were practically giving things away,” Vaeza, a secretary for a logistics company, said by phone from Montevideo, referring to prices in Argentine supermarkets. “There’s no comparison with Uruguay.”
To contact the reporters on this story: Charlie Devereux in Buenos Aires at firstname.lastname@example.org; Lucia Baldomir in Montevideo at email@example.com. To contact the editors responsible for this story: Michael Tsang at firstname.lastname@example.org; Brendan Walsh at email@example.com.