Uruguay fears fall in value of the Argentine Peso could impact summer season

Since Argentina established rigid controls for the sale and purchase of US dollars the value of the Argentine Peso has systematically eroded and although the official rate, for the few operations allowed by the Central bank stands as 4.28/4.29 Pesos to the dollar, in the informal or ‘blue’ market the rate is 5 pesos having reached at moments of most uncertainty, 5.15 Pesos.

Over the weekend Uruguayan banks and exchange money houses were buying the Argentine currency at 3.40 Uruguayan Pesos and selling it at 4.40, while on November first the rate was 4.20 and 5.20 Pesos.

The US dollar in Montevideo is trading between 19.50 and 20 Uruguayan Pesos.

This in practical terms means that the Argentine tourists planning to visit or spend holidays in Uruguay have suddenly seen their currency purchase value plummet by 20%, and their costs rise by a similar percentage, which could also worsen if Argentines continue to face restrictions in their purchases of US dollars.

In effect, a flood of Argentine pesos in Uruguay will only see the value of the currency fall further.

The normal operation would be for the Uruguayan banks and money exchange houses to resell the Argentine Pesos (from the tourists) to the Argentine central bank, but according to Uruguayan government sources such compensation has not yet been confirmed by Argentine authorities.

Argentina imposed strict measures on the sale of dollars in an attempt to stop the flight of capital that in the last six years has been estimated at 72 billion dollars, having reached in the months leading to the 23 October election to over 3 billion dollars.

Economists and agents in Argentina have warned that such strict foreign exchange measures have only helped to create greater panic and avidness for the purchase of foreign currencies, particularly in such a highly sensitive market where at the minimum suspicion of volatility or uncertainty Argentine get rid of their currency and flock to take refuge in the US dollar.

Furthermore as ‘real’ inflation is almost two and a half times the ‘official rate’ consumers are eager to spend but well aware that adjustments are not that far away.

For Uruguay that has Argentina as its main supplier of tourists (over a million last season) prospects are disturbing.

The issue was extensively debated in the last cabinet meeting and Tourism Minister Hector Lescano acting as spokesperson, said that “although we must monitor the situation, we must follow events calmly but we don’t anticipate any special measures”.

The head of the Chamber of Tourism Luis Borsari was more enthusiastic: “Argentines will be coming (this season), it’ll cost them a bit more but they will come to Uruguay to enjoy and forget their problems and stress”.

Last week President Jose Mujica made an informal visit to Buenos Aires to receive an award from an Argentine university and was pragmatic about what would happen if Argentines can’t purchase dollars to spend in their holidays.

“There’s always fear: we fear the (volcanic) ashes; we fear the banks but people will be coming over to Uruguay for a splash in the sea and enjoy all the fun in the East (beaches and resorts). We must be confident this will happen”.