Argentina Finds New Inflation Culprit In Tourism Sector
I travel all the time goldbug - how about you? And no I dont mean to your back yard to dig a hole - HAHA
By Michael Casey
Of DOW JONES NEWSWIRES
BUENOS AIRES (Dow Jones)--Ask newly arrived tourists in Buenos Aires what they first plan to do and chances are they'll say, "find a good steak."
Beef and tourism complement each other nicely in Argentina. During the country's post-crisis export boom, both industries have benefited from a depreciated peso and a newfound foreign fondness for Argentine products.
Foreign arrivals at Buenos Aires's Ezeiza airport in the third quarter last year showed a 121% increase from the third quarter in 2001. Notwithstanding the threat to future foreign sales posed by an Argentine outbreak of foot-and-mouth disease confirmed Wednesday, beef producers are doing even better. Beef exports have tripled in volume from four years ago while prices have risen 165%.
Now, beef producers and tourism operators are finding their interests coinciding in a less welcome way. They are the latest targets in the government's war on inflation, accused of acting irresponsibly, of hurting Argentines' livelihoods and of stoking inflationary pressure.
Last month, the government announced a registry for beef exporters to administer permits for foreign sales. This implicit threat of quotas followed a hike in export taxes in November from 5% to 15%.
Now, hoteliers, travel agents and restaurateurs are in the cross-hairs. This follows a 7% jump in the "tourism" category within the consumer price index in January, which frustrated the government's efforts to damp inflation, currently running at more than 12% annually.
"We're studying (anti-inflation) measures for the tourism sector," Economy Ministry Felisa Miceli said late last week. "We're denouncing a sector that behaved in a way contrary to people's interests."
In both industries, the Argentine government faces a paradox.
On the one hand, rising demand by foreigners for the Argentine product - whether it's exported beef or Buenos Aires hotel rooms - creates jobs, brings in foreign currency and stimulates investment. Foreign tourists spent $3.61 billion in Argentina last year, representing 7% of the country's gross domestic product, and beef exports brought in $1.15 billion.
On the other hand, there is an unwelcome upward effect on domestic prices as foreign demand crowds out Argentine consumers and limits domestic supply of beef or hotel rooms.
This secondary effect is what's worrying the government. There's real concern among hoteliers and other tourism operators that the government will hit them with the same punitive measures it used against beef producers.
Hoteliers have already been approached to sign a price accord. If no agreement can be reached, speculation is that the government may impose an exclusive tax imposed on foreign guests. In that way, the measure would mimic the beef export taxes.
Already price differentiation exists in the domestic air travel industry and in some hotels, where Argentine residents are routinely offered lower prices than those paid by foreigners. But this program, designed to promote domestic tourism, is voluntary. Tourism consultants say mandatory rules and taxes would be counterproductive.
"To punish the industry with taxes would destroy it," said Arturo Garcia Rosa, president of tourism consultancy HVS International's Argentina branch. He said the government should cooperate with the sector, promoting investments to improve the quality of the country's tourism infrastructure and its overseas marketing. Both of these goals will be set back, not advanced, by such sanctions, he said.
This is a common refrain in Argentina. Many businessmen argue that the array of price accords and punitive measures will backfire because by discouraging investment they will restrict supply and thus only worsen inflationary pressures.
The scale of what's at stake in the tourism industry was laid out by Massimo Ianni, executive director of Destino Argentino, a private sector body set up to promote foreign tourism. Noting "huge foreign demand for Argentina as a destination," Ianni said some 450 expansion projects are underway around the country and that beyond these foreign tour operators are already demanding "more luxury hotels, more infrastructure."
What's more, say critics of the government's approach, the characteristics of the beef and tourism industries, with their many widely dispersed producers and a global demand base of millions of potential buyers, make it impossible to reach effective price agreements. In such markets, producers simply cannot act as "price setters," a phrase used by the government to explain the lead taken by the business sector in stoking inflation.
"There are around 190,000 ranchers in the country," said Luciano Miguens, president of Argentina's Rural Society, Argentina's largest farm group, in an interview following last month's failed beef negotiations. He said his members "don't really have control over pricing," which is "totally dependent on supply and demand."
The tourism industry is similarly spread far and wide. The Argentine Chamber of Tourism, which comprises travel agents, hoteliers, restaurateurs, exhibition promoters and airlines, counts among its members 70,000 small and medium-sized businesses.
At the same time, tourism operators, which typically operate in labor-intensive environments, are contending with rising wages. One manager of an international hotel chain in Argentina who asked not to be named said a 40% pay rise awarded to food workers in January is severely squeezing hotel margins. "How are we supposed to pay those wages and freeze prices at the same time?" he asked.
-By Michael Casey, Dow Jones Newswires; michael.j.casey@dowjones.com; 54-11-4313 1918 |
