Page 44 - IAADFS Summit 2023 Special Edition

INSIDER

The TMI LATAM economic report: A tale of two countries

John Gallagher reports from Buenos Aires

The economic situation in Latin of the year. But his strategies may be earlier than 180 days after shipment.
America cannot be described as buoyant. affected by the banking crisis in the U.S., Supplies of expensive whiskies and
As most countries in the region Switzerland, and other parts of the world. high-end fragrance brands in the
stumble out of the pandemic and try to The uncertain economic outlook domestic market are beginning to dry up
revive their economies, South America’s has curtailed many Brazilian travel as importers struggle to secure import
two major countries are looking to the plans. International air traffic is still way licences. Duty free shops may now be the
future with very different perspectives. below pre-pandemic levels due to fewer only retail stores where these products
international frequencies and high ticket can be purchased – but shop operators
Currency union? costs. Domestic travel has recovered will also be experiencing problems
In a surprise move in late January, well with domestic airlines reporting getting sufficient foreign exchange to pay
Brazilian President Luiz Inacio ‘Lula’ strong figures in the fourth quarter of all suppliers.
da Silva and Argentine President Alberto 2022 and the first few months of 2023. The normally strong agriculture
Fernandez announced they would start Local reports also indicate more regional business is also suffering. An extended
preparations for a common currency, travel to Argentina, Uruguay, Chile and drought this year means lower yields and
possibly leading to a full currency union. Paraguay, which is good news for airport it is unclear how much foreign currency
While a union with a joint central and border duty free shops in the area. Argentina will earn from the severely
bank that creates a currency to rival the depleted soy and grain harvest.
Dollar and the Euro sounds like a great Triple digit inflation in Argentina The uncertain economic outlook
idea, in reality, the two countries are It’s hard to put a positive slant and the difficulty in obtaining foreign
experiencing hugely dissimilar inflation on the Argentine economy - in early currency has affected the travel plans
rates and widely different economic March the official annual inflation rate of many Argentine travelers. Many
objectives. This makes the idea bizarre, was at 102.5%. This figure indicates vacationed at home or at hotels and
to say the least. poor economic management by the apartments on the Argentine Atlantic
Perhaps it was a ploy to ensure government and an inability to put a coast, Bariloche and Mendoza – which
better press coverage of Lula’s visit to clear anti-inflation policy into action. along with Tierra del Fuego enjoyed a
Argentina, but both countries have a long Critics say that price controls on basic very strong summer season.
way to go to ensure economic stability consumer products will never help if Travel to Europe and the USA was
and growth for their citizens before the government keeps printing money down on pre-pandemic figures due to
introducing such a drastic economic to pay for public employees’ wages and the reasons indicated above but also due
change. ever-increasing subsidies and grants to to lower flight frequencies and higher
Lula’s election victory last year disadvantaged social groups. airfares, a problem prevalent throughout
was expected to stimulate the Brazilian GDP growth slowed in Q4 of 2022 the region. This benefited regional
economy. However, uncertainties about and the consensus forecast for this year travel, however, and the Uruguayan and
the new government’s short term fiscal is between 0.5% and 1%. There is a Brazilian beach resorts posted strong
policies led financial markets to react possibility that the government may bookings.
negatively during the first few days in increase government spending prior Uruguayan port authorities tell TMI
January, when Lula and his economic to the October presidential elections. that the passenger traffic on ferries using
team took power. Whether this would improve GDP growth Montevideo and Colonia ports were
The basics of the economy appear or introduce new economic challenges, almost in line with 2020 figures, which
sound. The exchange rate at 5.15/5.20 remains to be seen. were the last full months prior to the
BRL to the USD has stabilized, inflation pandemic travel restrictions. International
at 5.6% is also stable and after a tough Exchange rate woes air travel grew in the second half of the
first quarter, GDP is expected to grow The official exchange rate is now at year but is still only around 70% of pre-
for the rest of 2023 by just over 1%. But 210 Pesos per Dollar but the grey market pandemic levels.
business and consumer sentiment remain rate is now at 390 and commentators It appears that the uncertainty in
pessimistic. say this rate is undervalued by between Latin America will remain for most of
Should Lula be able to reverse the 25-30%. this year. International travel figures will
early stagnating trend of Q1, economic The shortage of foreign currency is continue to improve slowly but we may
growth will become stronger in the a major problem for importers of luxury not see pre-pandemic passenger numbers
second half the year and into 2024. goods and the manufacturing industry, until the second half of 2024.
A stable first half should allow Lula and the government now insists that
to cut interest rates in the second half importers pay overseas suppliers not

TMI LATAM economic report

Summit of the Americas April 2023 44