Argentina to suspend access to the tourism dollar and hinder tourism

Due to the shortage of dollars in the country, the Argentine government is preparing measures to prioritize the use of the Central Bank’s international reserves to the productive sector, preventing the purchase of tourist services abroad and the use of credit cards in international travel. The measure would directly affect Brazil, the main country to receive Argentine tourists. Almost 40% of foreign tourists in Brazil are Argentines.

The new Minister of Economy of Argentina, Silvina Batakis, indicated that the suspension of access to the dollar for the purpose of traveling abroad is a measure that the government could take to preserve this “scarce resource” that, as a priority, “has to be available of production”.

“The right to travel (abroad) collides with the generation of jobs”, argued the minister when asked if the government is going to prohibit access to the tourism dollar. “We will take all measures so that the reserves (of the Central Bank) are destined for production”, prioritized Silvina Batakis, claiming that “the dollar is a scarce resource”

Asked if the measure would not affect a right of Argentines, Batakis claimed that “everyone has the right to vacation”, but that the government “has to manage the reserves for the country to grow”. “We need to invite (Argentines) to get to know our country more,” she suggested.

Brazil will be the most affected

Every year, Brazil is the country that receives the most Argentines. In 2019, the year prior to the pandemic, there were almost two million tourists to Brazilian territory (1.9 million). In 2018, the number had reached 2.5 million, accounting for 38% of all foreign tourists who visited Brazil.

Even during the pandemic, with severe flight restrictions and the prolonged Argentine quarantine, the rates of Argentine tourists in Brazil remained at 50% of the usual flow.

This week, Sílvio Nascimento, president of the Brazilian Agency for the International Promotion of Tourism (Embratur), projected that Brazil hopes to recover the pre-pandemic level of foreign tourism in 2023. The Argentine measure would complicate that goal.

Without access to the tourism dollar, Argentines would need to resort to the parallel dollar, whose price is much higher, making the trip more expensive.

The parallel dollar in Argentina closed this Wednesday (6th) at 255 Argentine pesos, 91% higher than the official dollar (132.85 pesos). To reduce this difference, the government applies a 30% tax on the official dollar value and a 35% withholding tax that can be refunded on the income tax return. The bill raises the value of the dollar to 219.20 pesos.

Argentines can buy up to US$ 200 (R$ 1,078.50) a month in cash, while the purchase of goods and services abroad has no limits via credit card. It is these accesses that the government is preparing to ban.

Economy in agony

Two weeks ago, restrictions on Central Bank dollars arrived for companies. Importers must finance their purchases abroad with dollars obtained on their own account, 110% more expensive than the official quotation.

As domestic production depends on imported components, the measure threatens to paralyze local manufacturing, trigger shortages and raise prices, fueling projected annual inflation now at 100% in 2022.

The new economy minister ruled out a devaluation of the official dollar. “We don’t see an expectation of devaluation, apart from the exchange rate run”, minimized Batakis.

However, the financial market is working with a scenario of devaluation of the Argentine currency or a new moratorium, this time with debt in short-term pesos with local banks. Without access to international credit and without reducing public spending, the government has appealed to unsupported currency issuance, fueling rampant inflation. To sterilize part of this issuance, the Central Bank issues short-term debt linked to inflation.

The debt ball and the few reserves of the Central Bank lead the financial market to work with two solutions: an orderly devaluation of the Argentine peso or an uncontrolled devaluation with a moratorium. This explains Argentina’s country risk at 2,700 basis points, only behind Venezuela, Ukraine and Russia.