Before this week, if you traveled to Argentina on vacation, you needed to come with a briefcase full of U.S. dollars to truly get the best bang for your buck. That all ended yesterday as the new government lifted currency controls and allowed the Argentine peso to float freely. As expected, the official rate quickly moved to near-parity with the so-called “blue rate” and became normalized.
It’s a sure sign that a country’s finances are royally screwed up when you can get a significantly better exchange rate from a shady guy with a stack of bills standing on a street corner than you can from an ATM. I can only recall a few places where I’ve traveled in my life that this has been the case and it’s always been because of super-high inflation or an inept government following policies that were a ticking time bomb.
It was a little of both in Argentina, but now the bomb has been diffused. There will be some short-term pain for sure for the locals since prices will surely rise faster than wages for a while for local goods. Imported ones were already restricted and expensive though, so only the truly elite have been drinking Champagne or Scotch. Some of the luxury hotels were resorting to having their French soaps brought in via employees’ luggage since that was months faster than going through official import channels. Many major brands pulled out of the country entirely after finding it too difficult to restock their shelves. Here’s how the country’s new finance minister put it after making quick reforms just a week into his term, on CNN:
Those who want to export will be able to export without asking for permission. Those who want to import can import without permission. This is how a normal economy functions in any part of the world.
Now that Argentine companies can trade dollars freely (individuals still have a cap), Uruguay and Panama will probably see a drop in business. Company owners would frequently take a trip to the former by ferry or the latter by plane to do their real banking since they were so hobbled in terms of international finance in their own country. Each time they left though, they had to pay a 30% tax on their credit card, so I’m sure they’ll be glad to travel less for business in the future.
What’s in it for Us?
The big benefit for travelers heading to Argentina is you don’t have to feel like a mob target by entering the country with wads of $100 bills. Now when you use your ATM or Xoom to get cash, you’ll get a rate that’s based in reality rather than one based on artificial levels. It should enable you to spend more of your time enjoying the country instead of chasing down a place to exchange your dollars or euros at the best rate.
Hotels were already priced in dollars most of the time, so there won’t be many changes there. After a while there will likely be a rise in the price of domestic goods as things normalize. Who knows what will happen for real, but the government may need to raise peso prices on subway tolls and museum admissions.
The one big thorn in every Amercan visitor’s side has not gone away yet: the exorbitant visa fee to enter the country. Basically they charge other countries’ citizens what we charge their citizens, so since it’s expensive for an Argentine (but not a Chilean) to come to the USA, we have to cough up $160 or so per person to them before we even get out of the airport. As expected, this has dampened visitor numbers—especially families—from their potentially most lucrative market. Since the new administration seems to favor logic over nationalism, odds are good this situation will also get resolved in the near future.