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Argentina will continue to become more expensive in dollars, what could be the local effects?

Argentina will continue to become more expensive in dollars, what could be the local effects?
Argentina will continue to become more expensive in dollars, what could be the local effects?

Economic movements in Argentina They are always topics of special attention in Uruguay, especially when it has to do with what will happen with the dollar and the exchange rate in the neighboring country, when the coast is barely recovering from the effects of the exchange difference so present during the past year. In this regard, the Argentine Minister of Economy, Luis Caputo, ruled out one devaluation but warned that the country will become even more expensive in dollars, what does this mean for Uruguay?

After the significant devaluation of December 13th in Argentina, the exchange rate stabilization strategy adopted to continue reducing the gap between the official dollar and the Dolar blue or parallel has been the crawling peg, a monthly adjustment of 2% that seeks to mitigate the impact of possible shocks with their subsequent transfer to prices or avoid the exchange rate lag.

This worked for a few months, during which Uruguay the positive effect of the was felt reduction of the exchange rate differencefueled by very high inflation on the other side of the Silver river which left the country just 47.07% more expensive than its neighbor. However, in recent weeks the Argentine political climate unbalanced the markets, which reacted with a Blue dollar escalation and its consequent reflection in the price gap, which rose to 59% at the end of May – it remains to be seen how the historical record of the parallel exchange rate at 1,450 Argentine pesos will impact in this regard.

A more expensive Argentina in dollars

Now, the Argentine Economy Minister warned that his country will “inevitably” become more expensive in dollars, although he ruled out a devaluation. “In the next twelve months it will be more expensive. That’s what happens when a country does things right,” he said in an interview with Radio Mitre.

“We, along with the President, are against historical real exchange ratebecause we believe that it is difficult to measure because there are factors that influence and you are comparing situations that are not the same. In fact, if I were to use that historical strip, that would reinforce that the dollar is not expensive today,” he concluded, explaining that the peso will strengthen in the face of the scheme of coin competition that the government would implement Javier Milei, hence “Argentina will inevitably become more expensive in dollars.”

The impact in Uruguay

That Argentina It is bittersweet news for the dollar to become more expensive. Uruguay. On the one hand, it makes it a less attractive destination for domestic consumption local due to the reduction of the price gap between both countries, causing Uruguayans to prefer buying in the national territory and, consequently, also maintaining the collection tax and the flow in local businesses.

This also has its counterpart, but negative, in the tourism, since the economic situation in Argentina means that tourists from that country – who are essential to Uruguay’s tourism balance – are less comfortable when it comes to travelling or, at least, spending money in other countries.

Finally, and as the economist warned, Javier De Haedo on several occasions in the context of Economic Situation Monitor of the Catholic University of Uruguay (UCU)the increase in the price of dollars Argentina can lead to a import of this inflation. What is the reason for this?

That the reduction of the price gap and the increase in Argentine prices causes there to be a “competitor” less for certain services in Uruguay which, previously, pushed local values ​​down in order to be able to compete on better terms. Without that reference, and also in the face of a Increased demand For goods and services resulting from the lower diversion of consumption outside the border, internal prices could begin to reflect the effect of inflation in dollars, “imported” from Argentina.

Source: Ambito

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