The exchange difference with Argentina is one of the biggest concerns for people who live on the border of Uruguay and, far from being solved, the price gap is increasing more and more, as well as its consequences: less sales for merchants in the area, a direct impact on economic activity and more unemployment in the coastal departments. Although the current context is particularly serious, this problem is not recent and responds, to a certain extent, to elements that are already structural. What to face the challenge?
In the last survey of the Border Price Indicator (IPF) of the Economic Observatory of the Catholic University of Uruguay (UCU)corresponding to March, the prices of Leap showed a difference of 127% compared to those of Concord. This means that it was, on average, a 127% more expensive buy the same products in Uruguay as in Argentina.
This figure, although it is still high, showed a slight decrease compared to the previous relief, in January, when the IPF registered a difference of 144%. for the economist Maria Jose Medin, responsible for the study of border prices of the UCU, the reason for this reduction was not in the measures implemented by the government in order to alleviate the gap. “The exchange rate remained stable, what happened was a rising inflation in Argentina at the same time that there was a slowdown in inflation in Uruguay”, he explained in dialogue with scope.com.
The exchange gap, a circumstantial and structural problem
The current context is serious in terms of the exchange difference, with 100% of the products in the basket surveyed by the UCU —30 products— being more expensive in Uruguay than in Argentina. In some items, the difference exceeds 300%, and a quarter of the products are between 200% and 300% more expensive in the territory than in the neighboring country.
Meanwhile, the drop in sales for border businesses has a direct impact on the drop in employment: Salto is the department with the highest unemployment rate, exceeding 14%, according to the latest disaggregated data available from the National Statistics Institute (INE), corresponding to February. He also raised unemployment in Artigas and paysandu (12.7% and 10.5%, respectively), while in Black river it yielded but due to a drop in the activity rate.
Although the price gap narrowed, the UCU Economic Observatory expects that may bring a new increaseas Medín explained to this medium.
— A new price survey begins in May, what do you hope to find on the shelves of both countries and how can it affect the IPF?
The next report will be out in the first days of June, and the reference jumped a lot: the exchange rate we use is the average of the Dolar blue published by Financial Area of Argentina, and in the last two weeks it went up a lot. So the price difference is going to be bigger. The average value is 382 pesos in the last difference that is measured, and today the blue is around 350 pesos. The gap will widen.
— What is the importance of the Border Price Indicator for monitoring the problem of the price gap?
The importance of having the price difference measured and of having a series over time is that we can find more structural than conjunctural aspects: although the situation leads to a widening of the price gap, some items were always cheaper in Concordia, even when the exchange rate did not explain the difference as much.
For example, in alcoholic beverages and cigarettes or also in household products such as cleaning soap or detergent, or in the division of miscellaneous goods that includes items such as toothpaste, shampoo, deodorant, and toilet paper; even when blue did not explain the gap, there was a 30% difference. So this indicator, over time and in different situations, is a more structural X-ray.
— And what is the cause of this structural difference in prices between the two countries?
In Uruguay, for some products there is little competition, there is a oligopolistic structure of few importers that generates some market power to set prices. There may be, from a structural point of view, a cause.
Also, as we all know, there are also some high production costs that make us less competitivesuch as energy costs, utility costs and a certain level of high taxes. That makes competitiveness in the medium term as the difference in the exchange rate to the situation.
— The Central Bank recently lowered the reference interest rates, precisely, to try to respond to a claim due to the low competitiveness of the country. Can this positively impact the price gap?
While the dollar rises in Uruguay and the exchange difference narrows a little, the price difference could also shrink, as long as the blue does not continue to skyrocket in Argentina, that there is not a depreciation or devaluation in Argentina larger than in Uruguay. Here the problem is that all the variables move at the same time, the result is the combination of all the variables at the same time.
“We are victims of the situation in Argentina”
— Are the measures taken by the government to alleviate the situation correct or sufficient, in principle, from its conjunctural aspect? What should be done?
All measures that can be taken by both the national government and the departmental governments are important to alleviate the situation of the current situation that is very serious, but They don’t solve the underlying problem.. Against that reality you have to take other deeper measures, such as opening up some imports to competition or improving the competitiveness of public tariffs, that is, lowering them. That should be attacked.
And although the measures that can be taken at this time are measures that can alleviate the issue a bit, we cannot lose sight of the fact that Today the one who has to fix the issue is Argentina. We are being victims of an Argentine situation that is not going to change in the short term. The price difference is going to deepen until Argentina does not modify its macroeconomic problemsand in that the Uruguayan governments cannot do anything.
But it is important that action is taken at the local level while it is possible. All the bills that arose from this border situation are good. Of course: from the Observatory we say that the border policy goes beyond the measures that can be taken only in consumption. It also implies regulations, regulations and modernizations in terms of work, relations between countries, it is much more than an exchange situation or consumption on one side or the other. Everyone focuses on the situation, but why don’t we think in the medium term, in the long term?