Authors: Daniela Desantis and Lucinda Elliott

NANAWA, Paraguay (Reuters) – Paraguayan shoppers flocked en masse to the border town of Nanawa to buy inexpensive goods imported from Argentina, where the tender peso currency has for years kept prices for fuel, medicines and groceries smuggled across the border relatively low.

Today, Nanawa is a ghost town where contraband prices have skyrocketed amid a sporadic combination of inflation of nearly 300% in Argentina and a buoyed peso, which under libertarian President Javier Milei has even appreciated against the dollar in widely used parallel markets.

“Before, everything worked very well, we sold everything,” said Marta, 57, a pharmacy employee in Nanawa who wanted to operate only her first name. “Now there is nothing. It’s been like this for two months, the city is dead.”

Shop owners in Nanawa, 30 km (18 miles) from the capital Asuncion, estimated to Reuters that sales had fallen by 60% to 80% since Milei took office in December, when he sharply devalued the official peso currency and implemented austerity measures.

Since then, the peso has been able to depreciate as little as 2% per month at a controlled “creeping rate,” and monthly inflation, while declining, is around 10-20% each month. This meant that prices in dollar terms skyrocketed.

Something that cost 1,000 pesos on January 1 would be worth $1.24 at the official exchange rate on that day. With cumulative inflation of 65% in April, the same product would cost 1,650 pesos, or $1.88, on April 30, an increase of more than 50%.

That made Argentina much more expensive in relative terms, fueling analysts’ claims that the peso is overvalued and calls for another devaluation. Meanwhile, tourists and exporters felt the pinch of less competitive local prices.

“For Argentina, this process is painful,” said economist Gimena Abreu, who analyzes relative prices on Uruguay’s border with Argentina at the Catholic University of Uruguay, adding that exports and tourism will suffer short-term losses.

Her team’s data shows that the price gap between Uruguay and Argentina fell from 180% in September, before Milei took office, to 50% in March, when relative prices in Argentina soared.

“In the short term, Argentine exports will become less competitive,” Abreu said. Argentina’s largest exports include soy products, corn, wheat, beef, energy products and cars.

INCREASED PRICES

This has raised costs for ordinary Argentines, hitting consumption. A kilogram of beef last September cost an average of 2,846 pesos (about $3.70 at then freely available parallel exchange rates), official data shows, much cheaper than the $7 minimum in regional capitals such as Montevideo and Santiago, Chile.

The latest data from April shows the price of Argentine beef at

6,505 pesos, almost $7, largely eliminating the cost advantage.

“My relatively comfortable lifestyle of earning dollars has gone to the other extreme,” said Paige Nichols, a 37-year-old Buenos Aires resident who moved to Argentina from the United States 17 years ago. “Now I have to be very careful about what I spend.”

Nichols told Reuters that her monthly household expenses have increased by about 150% since the December devaluation, mainly due to health insurance, utilities and groceries.

Products like olive oil and toothpaste become minor luxuries. Reuters found that in Buenos Aires, a half-liter bottle of olive oil costs an average of $15, with prices for some brands as high as $26. Colgate toothpaste cost 4,976 pesos, or $5, for a single 90g tube, twice what retailers in Paraguay and Uruguay charge.

Nichols, who works in the tourism industry, said once-cheap prices for tourists have now caught up with regional neighbors and even the United States. She said meals in Buenos Aires were almost twice as pricey as a year ago.

“FESSOR PEOPLE PASSING”

Still, government data shows tourist arrivals rose in the first two months of the year, although there are signs of strain as prices rise, posing a potential risk to the $3.2 billion worth of travelers who contributed to the economy last year. $2 billion.

Outbound tourism data from Uruguay shows that between January and March 2024, arrivals from neighboring Uruguay, which spent $1.3 billion in Argentina last year, dropped 25% from a year earlier.

Border towns in Paraguay, Chile and other countries have seen lower local demand for products imported from Argentina, but others have welcomed the change in trend, which also means fewer residents are taking day trips to Argentina in search of bargains.

“I will say that I have heard of fewer people crossing the bridge into Argentina to shop,” said Lilian, a Uruguayan café owner who runs Helianthus Bistro in the border town of Fray Bentos, across the Uruguay River from Argentina.

“Everything there is getting more and more expensive, so there are no bumper-to-bumper lines of cars crossing the bridge anymore.”

Back in Nanawa, 36-year-old supermarket worker Raquel Alvarenga said previously rising demand for cheaper products imported from Argentina meant the store had to expand beyond its doors to cope with the number of customers. Now it’s over.

“It was quite damaging. Sales have dropped by 50%, which is hitting trade… Argentine companies are constantly raising prices to the sky. They change every day,” she said.

“Before, we had to serve people outside because we couldn’t fit everyone in the store. Now we have time to drink (local tea) terere.”