RIO DE JANEIRO, BRAZIL – Uruguayan authorities expect the forthcoming reopening of bridges linking the country with Entre Ríos in Argentina to trigger a massive displacement to the neighboring country to benefit from the exchange rate difference and buy products at a third of their cost.
“This is an age-old problem with fluctuations. Sometimes prices are lower in Uruguay and in that case Argentines cross over. Other times, as now, it is the other way around. This is something common in border regions. It also happens in the north, with Brazil. In the absence of a coordinated policy between the countries, these difficulties arise,” said Andrés Lima, Mayor of the Uruguayan city of Salto.
After a year and a half with borders closed due to Covid-19, the Mayor expected an “an exodus, a massive displacement of Uruguayans to Argentina that will ultimately impact local commerce, with the consequent closure of stores and loss of jobs. We have experienced this at another time and that is why the concern led the Mayors of Salto, Paysandú and Río Negro and the commercial centers to prepare a proposal to be submitted to the national government.”
On Monday, September 6, in Paysandú, the public and private sector of the border area with Uruguay will prepare a package of measures to present to president Luis Lacalle Pou in order to minimize the impact of shopping tours.
“They are intended to encourage consumption on the Uruguayan side through some benefits,” Lima explained. The first one will consist of “a discount in the basic basket of products to discourage crossing and benefit consumers, retailers and the government. There is a precedent: a 24% discount on fuels applicable to the three border departments of Uruguay”, he said.
Despite the discount, gasoline in Argentina is cheaper. In Uruguayan pesos, it is $30 (US$0.70) a liter while in Uruguay it is over $50.
“Another measure is the VAT withholding, which in Uruguay stands at 22% for purchases with debit or credit cards,” added the Mayor of Salta.
Among the examples supporting these actions is what is happening in Rivera and Artigas, two cities divided by a street with by their twins Santa Ana and Quarai in Brazil, where prices are much lower. To offset this, free shops were installed in Uruguayan territory. “Here we are proposing something similar, with the same result,” Lima explained.
Extreme measures and others that did not work in the recent past have been ruled out. “The reopening of borders and free circulation through bridges is something that must be done. No one is suggesting that they should not be opened or that there should be some kind of limit, except for vaccination, which is a worldwide requirement,” Lima explained. This is not a minor point: during the conflict over the installation of pulp mills, Argentine blockades led a heavy blow to the Uruguayan economy.
Limits and restrictions on trade were also left out of the debate. “At the time, the ‘zero kilo’ was implemented. And it did not work. The commercial centers agreed that it was not positive. Then a 5 kg cap was implemented. It did not work either,” Lima said.
The “zero kilo” was a measure implemented during José Mujica’s presidency. It consisted of Uruguayan cars entering Argentina having to return with the same weight with which they had crossed the border.
IMMINENT DAMAGE
Ricardo Paulino, president of the Commercial and Industrial Center of Salto, said that 90% of its member companies will have their sales affected once circulation is enabled. This includes restaurants, tourism, medicine, pharmacies and basic needs businesses.
The entrepreneur owns a food distribution company. When the bridges were closed and people could not cross to Concordia to buy, his sales increased between 30 and 40% “even amid the pandemic,” he pointed out.
Paulino said that the price and tax reduction proposed to President Lacalle “is not enough.” “The ratio is 6 to 1. And it is not enough to lower VAT or to reduce some products by 10 or 12%. In a short time it will produce a ‘landscape effect’ and it will be something common that will not change the reality,” he said.
To support his position, he provided specific numbers for some products. As a reference, the official exchange rate is 2.30 Argentine pesos per Uruguayan peso:
– Sunflower oil costs 35 Uruguayan pesos in Concordia, on the Argentine side, and in Salto it costs between 130 and 140 Uruguayan pesos.
– A kilo of salt costs $28 in Argentina and half a kilo costs about $45 in Uruguay.
– Yerba costs $60 in Concordia and $170 in Salto.
– A night at a hotel varies from $250 to $1,500 depending on the side of the river.
– An average lunch in an Argentine restaurant costs an Uruguayan about $250, but in his own country he has to pay more than $700.
“In Uruguay we must become more competitive with the whole region. We need more border policy to lower the cost of electricity, water, contributions and taxes. We do not want to be cheaper, but more competitive and that this should be maintained over time,” the entrepreneur said.
Paulino also pointed out that Argentine tourism with high purchasing power “goes to Punta del Este, Rocha or Piriápolis. Very little comes to Salto” and therefore “it cannot help us.”
In fact, according to data from the Commercial Center, on peak days before the pandemic, some 5,000 cars traveled to Concordia. At two or three occupants per vehicle, the population of Entre Ríos increased by almost 10% on those days.
TOO MUCH AND TOO LITTLE
The rise in demand in Argentine border cities will lead to an increase in sales in local stores. Traders usually use this flow of Uruguayan pesos to bypass national restrictions and buy dollars in the neighboring country. However, in parallel, there is a risk that mass consumption products will increase in price and become unaffordable for local consumers.
Pablo Lapiduz, director of Competition Protection of the Municipality of Concordia said that so far there is no plan to address this situation. “We cannot legislate locally on prices. That is national jurisdiction. We only assist with the price control that is set in national programs,” he explained.
The official specified that before the pandemic, no variation in the price of products at nominal value emerged from inspections. However, variations in the exchange rate were recorded: a better quotation of the Argentine peso was requested, which made products partially more expensive for Uruguayans. Conversely, others – mainly restaurants — improved the exchange rate to attract Uriiguayan consumers.
Source: Infobae