Argentines Turn to Bolivian Pesos Amid Inflation, Currency Depreciation

Buenos Aires — A challenging inflationary scenario and the persistent depreciation of the peso are impacting Argentines’ daily life in a number of ways, and the latest example is how people in the north of the country, particularly in La Quiaca, a city located in the north of Jujuy province, and which has a border crossing to Bolivia, are buying Bolivian pesos to protect their purchasing power, rather than opting for Argentine pesos or US dollars.

More accessible than the US currency for residents of La Quiaca, or Quiaqueños, the Bolivian currency has become a safe haven due to its stability.

In July 2017, the Bolivian peso was trading at 6.81 to the US dollar, and today is at 6.87.

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But locals warn that this is a cyclical process, Amid the weakness of the national currency, the demand among Bolivians to buy goods in Argentina is also growing, at prices up to 50% cheaper. On the other hand, Bolivians reject Argentine pesos, or only accept them at a very low exchange rate from people arriving from Argentina.

La Quiaca

La Quiaca has a population of around 24,000, located on the arid, high plains, with an international crossing to Villazón, Bolivia, which has a population of around 30,000. The border crossing is the most-used by travelers from both countries, and is a thriving trade route.

“La Quiaca is a commercial city. Whenever the Argentine or Bolivian peso is devalued, there is an impact. Now, many people from Bolivia come to make bulk purchases in La Quiaca, and there is significant commercial transit,” mayor of La Quiaca, Blas Gallardo, told Bloomberg Línea, and who adds that such trade translates into greater demand for freight to move the merchandise.

According to his estimates, the products most in demand by the Bolivian population can cost “between 40-50% less” on the Argentine side. “You can see the difference”, he said.

What do Bolivians buy in Argentina?

In La Quiaca there is a strong interest among Bolivians in acquiring all kinds of goods, from household appliances to clothing. However, demand is highest for food and beverages.

“Bolivians buy all kinds of things. Especially groceries, fats, oils, beverages and hygiene items,” Miguel Ángel Tito, president of passenger transport company Evelia, told Bloomberg Línea.

“This is cyclical. When the economies of the countries are more or less healthy, the situation balances out,” adds Tito, who has also held the role of mayor of La Quiaca. “You see a lot of sales also because it is an Andean area, and it is not possible to plant. The population has to feed itself, and it is cheaper to buy in Argentina,” he explains.

In addition, he says many traders from Bolivia are already crossing the border to buy cider, with an eye on the end-of-year celebrations.

Alejandro Bustamente, vice-president of the Jujuy Chamber of Commerce, agrees that “the exchange rate favors Bolivia”. “Our currency is quite depreciated, and for Bolivians it is convenient to buy foodstuffs such as flour and noodles in Argentina. Entire truckloads of merchandise pass through”.

Although this implies a positive impact for Argentine trade, which faces high demand, “the negative side is the smuggling of supplies and merchandise”, La Quiaca mayor Gallardo says, and who adds that, as a result, border controls must be stepped up, especially of the trucks that cross “without destination”.

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The impact on Argentine trade

Berta Gerónimo was born in La Quiaca and, although she currently lives in San Salvador de Jujuy, her family is still in her hometown, and she crosses the border regularly.

“Our peso has devalued so much compared to the Bolivian peso that now they [Bolivians] cross the border and even buy household appliances in cash,” she says.

“On the border the situation has always been cyclical. When Argentina is doing well, Argentines go to Bolivia and buy everything and, at other times, it is the opposite. People from Villazón now go to La Quiaca and buy merchandise. The traders buy tons or whole trucks of merchandise. They take everything,” Gerónimo says.

“The stores prefer to serve Bolivians because they benefit more. While the Bolivians buy by the bale, Argentines buy by the kilo.”

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Saving in Bolivian pesos

“Many citizens save in Bolivian pesos because it is difficult to get US dollars. Commerce is the economy of poorer people, and many of those who are unbanked choose to buy Bolivian pesos in bureaux de change,” Gallardo says.

Meanwhile, Alejandro Bustamente, vice-president of the Jujuy Chamber of Commerce of Jujuy, says this a common phenomenon.

“That is how it is. The Bolivian peso is in great demand,” he says.

“One Bolivian peso is 33 Argentine pesos,” he explains, highlighting the large gap between the neighboring countries’ currencies.

La Quiaca’s mayor explains that the price of currencies displayed in the town’s bureaux de change depends to a great extent on the movements of the blue dollar, which in the last few days reached record highs.

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The Argentine peso, in free fall

“The Argentine peso should serve as an exchange currency, something that today is relative since it is such a devalued currency that it is only used for minor transactions,” economic analyst Salvador Di Stefano wrote in a recent report.

“The Argentine peso should serve as a reference of value, but that doesn’t happen either because the prices of cars or properties are reflected in the US currency, and few Argentines save in their local currency,” he added.

“Local inflation, the appreciation of the US dollar worldwide, and the loss of international reserves put more pressure on the official exchange rate, which in June added an eighth consecutive month of acceleration,” according to Santiago Manoukian, an economic advisor at Ecolatina.

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“The Argentine central bank increased the devaluation rate to 4.2% per month on average,” he explains. “Although this is not enough to prevent exchange rate appreciation, there is not much margin for the central bank to validate a significantly higher devaluation rate than the current one, which already contributes to creating a higher inflationary inertia.”

“While the wholesale dollar accumulates an increase of 20% in the year, inflation, based on June estimates, would exceed 35% over the same period. For this reason, despite the acceleration of the crawling peg, the dollar and prices continue at two very different speeds,” Manoukian says.

Translated from the Spanish by Adam Critchley