Written by Daniela DeSantis and Lucinda Elliott
NANAUA, Paraguay (Reuters) – Shoppers in Paraguay used to flock in droves to the border town of Nanawa to buy cheap imports from Argentina, where years of weakness in the peso currency have depressed the relative prices of fuel, medicine and groceries smuggled across the border. .
Now Nanawa has turned into a ghost town, with prices for smuggled goods rising sharply due to Argentina's rare combination of inflation approaching 300% and a subsidized peso that has risen even against the dollar in parallel markets widely used under liberal President Javier Miley.
“Before, things were going very well, we were selling everything,” said Marta, 57, a pharmacy employee in Nanawa who only wanted to give her first name. “Now there is nothing left. We have been like this for two months, and the town is dead.”
Shopkeepers in Nanawa, located 30 kilometers from the capital Asuncion, told Reuters that sales had fallen by between 60 and 80 percent since Miley took office in December when he sharply devalued the official currency, the peso, and announced austerity measures.
Since then the peso has been allowed to depreciate by only 2% per month on a controlled “creeping peg” basis, and the monthly inflation rate, although slow, has been around 10% to 20% per month. This means that prices in dollars have risen.
Something that cost a thousand pesos on January 1 was worth $1.24 at the official exchange rate that day. With cumulative inflation reaching 65% during April, the same product would have cost 1,650 pesos, worth $1.88, on April 30, an increase of more than 50%.
This has made Argentina much more expensive in relative terms, sparking claims by analysts that the peso is overvalued and calling for another devaluation. At the same time, tourists and exporters felt the pinch of less competitive local prices.
“For Argentina, this process is painful,” said economist Jimena Abreu, who analyzes relative cross-border prices between Uruguay and Argentina at the Catholic University of Uruguay, adding that exports and tourism would be hurt in the short term.
Data released by her team shows that the price gap between Uruguay and Argentina fell from 180% in September before Miley took office to 50% in March as relative prices in Argentina rose.
“In the short term, Argentine exports will become less competitive,” Abreu said. Argentina's most important exports include soy products, corn, wheat, beef, energy products, and automobiles.
Price promotion
This has raised costs for ordinary Argentines, hurting consumption. Official data indicate that the price of a kilogram of beef last September averaged 2,846 pesos (about $3.70 at freely accessible parallel exchange rates at the time), much cheaper than at least $7 in regional capitals such as Montevideo. and Santiago, Chile.
The latest data in April shows the price of Argentine beef at
6,505 pesos, roughly $7, which pretty much erased the cost advantage.
“My relatively comfortable lifestyle of dollar income has gone to the other end,” said Paige Nichols, 37, a Buenos Aires resident who moved to Argentina from the United States 17 years ago. “I now need to be very careful about what I spend.”
Nichols told Reuters her household's monthly spending has risen about 150 percent since the currency's devaluation in December, driven primarily by health insurance, utilities and groceries.
Products such as olive oil and toothpaste became small luxuries. Reuters found that a half-liter bottle of olive oil costs an average of $15 in Buenos Aires, with some brands going for as much as $26. Colgate toothpaste was priced at 4,976 pesos, or $5, for one 90-gram tube, double the price charged by retailers in Paraguay and Uruguay.
Nichols, who works in the travel industry, said cheap prices for tourists are now in line with its regional neighbors and even the United States. Eating out in Buenos Aires was costing almost twice as much as it was a year ago, she said.
'Fewer people are crossing the border'
Despite this, government data shows that tourist arrivals rose in the first two months of the year, although there are signs of tension as prices rise, a potential risk for travelers who brought $3.2 billion into the economy last year.
Between January and March 2024, arrivals from neighboring Uruguay – which spent $1.3 billion in Argentina last year – fell by 25% compared to last year, Uruguay's outbound tourism figures show.
Border towns in Paraguay, Chile and elsewhere have seen domestic demand for Argentine imports decline, but other cities have welcomed the changing trend, which also means fewer locals making day trips to Argentina to hunt for bargains.
“What I will say is that I've heard of fewer people crossing the bridge into Argentina to shop,” said Lillian, an Uruguayan café owner who runs Helianthus Bistro in the border town of Fray Bentos, across the Uruguay River from Argentina.
“Things are getting more expensive there, so there are no longer lines of cars bumping into bumpers crossing the bridge.”
Back in Nanawa, 36-year-old supermarket employee Raquel Alvarenga said previously booming demand for cheaper Argentine imports meant the store had to expand beyond its doors to cope with the number of customers. Now that's over.
“It was very devastating,” she said. “Sales fell by 50%, which hurt trade…Argentine companies are constantly raising their prices significantly. It changes every day.”
“Before, we had to serve people outside because we couldn't accommodate everyone in the store. Now we have time to drink (local tea).”