Travel v. Crisis

Yesterday I got a note from the operator of a small tourist lodge in Tierra del Fuego asking me what I thought the impact of the current global economic crisis might be on this summer's season. On the surface, of course, it makes sense that people whose mutual funds have lost a third of their value might be reluctant to spend money traveling great distances but, at the same time, there's a certain logic in going against the grain. I'd never suggest that people should throw away their retirement funds on a two weeks' vacation but, just as investor Warren Buffett recently said he's moving his money into U.S. stocks because of the financial meltdown, international travelers may find they'll get more for their money in traveling to the Southern Cone countries.

That's partly because, against all odds, the U.S. dollar is actually strengthening against the currencies of Argentina, Chile, and Uruguay, and there are other favorable signals as well. When I was last in Chile in April, the peso was at roughly 430 per dollar, and the 2000-peso banknote illustrated here was worth about US$4.65; last Friday, with the peso at 617 per dollar, that same banknote was only worth US$3.24. As in the stock market, there have been some fluctuations, but the bottom line is that the dollar is worth 30 percent more than in April.

The case is slightly different in Argentina. When I last wrote about the topic about a month ago, the Argentine peso was only slightly above three per dollar, but now it's above 3.2 per dollar. That's a devaluation of roughly seven percent, but inflation - official figures are unreliable - is likely to eat up most of those gains. In neighboring Uruguay, meanwhile, the peso has lost about 15 percent against the dollar since early September.

Another favorable circumstance is that foreign travelers do not pay Chile's 19 percent IVA (Value Added Tax, or VAT) on accommodations - thus reducing the cost of a US$100 hotel room to US$81, for instance. Uruguay already offers a partial IVA refund to foreign visitors who pay their restaurant bills with credit cards, and is considering expanding the measure.

Argentina, however, does not do this - in fact, as I mentioned in a recent post, foreigners often end up paying more than Argentines in many cases. In this regard, Argentina's pending imposition of reciprocity fees is a further step in the wrong direction unless accompanied by an IVA policy similar to Chile's that could cancel out the negative aspects. Otherwise, as a US correspondent noted in yesterday's Buenos Aires Herald, "even if tourism levels were unaffected, I would expect that aggregate visitor spending on restaurants, entertainment, hotels, etc. would decline by an amount approximating any visa fee increase."

I would go even further in suggesting that, if Argentina persists in its "reciprocity" folly, it might undercut the future for far longer than the current economic crisis. Many of today's backpackers, though their low budgets may make only a minor contribution to the travel and tourism sector at the moment, will eventually be affluent job holders. If a visa fee discourages them from visiting the country now, it'll never occur to them to think about coming back when they're prosperous heads of families.

Welcome to Argentina? The "Reciprocity" Conundrum

Nearly thirty years ago, when I first visited Argentina during the "Proceso" military dictatorship, an apparently drunken policeman in the Patagonian town of Puerto San Julián insisted in telling me how much he loved Americans. In those days, any such attention from an official figure made you uncomfortable and, as it turned out, the policeman in question was heavily medicated - having literally shot himself in the foot the day before.

Fortunately, Argentina is a stable democracy now, but that doesn’t mean the country doesn’t shoot itself in the foot sometimes. Earlier this week, interior minister Florencio Randazzo announced that the country would institute a “reciprocity fee” - similar to the one collected by neighboring Chile - on foreign tourists whose governments impose visa fees on Argentine citizens. This would mean, for instance, that US citizens entering Argentina would have to pay US$131 per person for the right to enter Argentina, while Canadians would pay even more. Australians and Mexicans will pay correspondingly less.

This is not unfair, of course. Not only do Argentines seeking tourist visas for the US need to pay the said fee, but they also have to provide bank statements and other supporting documentation to prove they have stable employment and resources for their trip, and that they will not overstay their welcome. An applicant from, say, the southern city of Ushuaia will have to fly four hours to Buenos Aires and then back for a perfunctory personal interview at the US consulate. If the visa is not granted, there is no refund. It’s no surprise that Argentines (and other foreigners) resent the expensive, laborious and almost humiliating process, and many of them consider the new measure long overdue.

On the other hand, Argentine tourism operators are up in arms, and rightly so. Their sector has boomed since the 2002 economic collapse made Argentina an affordable destination, but rising international airfares, high domestic inflation, and the deteriorating international economic environment have put their livelihoods - and that of all Argentines directly and indirectly involved in tourism - in peril. Today's Buenos Aires Herald editorializes that the government "now risks discouraging tourism during a global crisis when few enough people feel inclined to travel." The measure, adds the Herald, "is jeopardizing a tourist revenue of potentially billions for the sake of 40 million dollars," the estimated amount of revenue that it would raise.

A US family of four would thus pay more than US$500 additional in “reciprocity fees” for a two-week Argentine holiday, and may well decide to go elsewhere in the current economic crisis. According to Ricardo Roza, president of the Asociación Argentina de Agencias de Viajes y Turismo (Argentine Association of Travel and Tourism Agencies), “In addition to being inconvenient, [the measure] seems dubious and difficult to apply. The world economic crisis is already affecting the arrival of tourists. There’s no reason to impose any more obstacles. In reality, this will limit the country’s foreign exchange earnings.” Another private tourism official added that “This charge is punitive, a very inhospitable measure.”

Originally, it was announced that the measure would take effect on January 1, 2009, but there are rumors it may be postponed until March - which would at least give operators one less worry for the upcoming summer high season. The details are yet unclear as well - who will collect the fees and how? Chile, for instance, collects its reciprocity fee only at Santiago’s international airport, as it’s utterly impractical at some remote border posts, so that overland travelers are de facto exempt. Nor is the Argentine measure’s term of validity clear - in Chile, again, it’s valid for the lifetime of the passport, up to ten years.

Meanwhile, an apparently impulsive government decision threatens to undermine one of the Argentine economy’s most dynamic sectors. It's fair enough to open fire on a threatening enemy, but it's foolish to shoot your ally, and even more foolish to shoot yourself in the foot.

Mismarketing Argentina - the Disaster of Discriminatory Pricing

Six years ago, in 2002, I was preparing the first edition of Moon Handbooks Buenos Aires in the midst of Argentina's dramatic economic and political meltdown. In the course of doing so, I paid a visit to a downtown hotel that had had the misfortune to reopen, at this worst possible time, as part of an international chain (not the Sheraton, pictured here). Given its location, barely a block from the chaos of the Plaza de Mayo, and the fact that tourism and business travel had come to a virtual halt, the hotel in question was nearly empty.

My story was that I was looking for a place to house my elderly parents, who were coming to visit, and that my small apartment did not have sufficient room for them, but my real purpose was to inspect the hotel anonymously. Normally I would expect the bellman to show me a room or two, and the hotel's common areas, but in this case I was asked to wait a few minutes as the concierge made a phone call. Imagine my surprise when the hotel manager emerged from her office to give me an exhaustive tour of the spectacularly recycled building, a neighborhood classic. Business was so slow that they had to put out every effort to attract even a single guest.

When I asked the price, the manager told me it was normally US$100 - in fairness, not an unreasonable price for a hotel of this standard in almost any country in the world - but, she added, "because you're living here, I can offer it for the 'local price'" of 100 pesos - closer to US$30. Today, following Argentina's recovery and persistent high inflation, rates at that same hotel start at US$150 plus taxes, and most rooms go for more.

This, however, was the first experience I had with "differential prices" which, over the last several years have become a plague and an excuse to rip off foreign tourists even as Argentine prices return to their pre-crisis levels, when the dollar and peso were one to one (at present, the dollar is slowly regaining strength against the Argentine currency). In March, the federal government finally acknowledged the problem by passing a Defensa del Consumidor (Defense of the Consumer) law that prohibits differential rates in hotels and other services, but the problem has not gone away. According to the Buenos Aires daily Clarín, in hotels, restaurants and taxis, services often continue to cost more to the client who's obviously foreign. In some extreme cases, advertised peso prices are claimed to be dollars or even euros - three or four times the true cost (Argentines also use the "$" symbol to denote pesos in everyday transactions).

One Recoleta artisan quoted by Clarín summed up the problem: "I charge whatever I want, because I'm the one who fixes the value of my labor." Caught giving a discount to an Argentine customer, though, he retorted that "The foreigner has more money than I do." In some cases, it's a little more subtle - when I went to dinner with my Argentine cousin and her husband in the Patagonian resort of El Calafate, for instance, a top restaurant gave us a 20 percent discount because they were locals (even though they're doing very well as freelance guides in Calafate's flourishing tourist economy).

The danger of all this, of course, is that foreigners will start to view Argentines as shameless opportunists who will do anything for a peso, dollar, or euro, and decide never to return - and to tell their friends not to bother going. For an individual or a business, overcharging a foreigner has short-term advantages; for the country as a whole, it could be disastrous. In general, prices are still reasonable, but Argentina doesn't need anything that would further erode its competitive advantage in the travel and tourism sector.

Planning for Patagonia

Usually, around this time time of year, I go on the road to help promote new editions of my guidebooks, and this year is no exception. Over the next month, I will be giving ten slide lectures to promote the new edition on Moon Handbooks Patagonia and, simultaneously, Moon Handbooks Buenos Aires (which includes excursions into the surrounding Pampas and coastal Uruguay). Attendees will be able to participate in a raffle for one free ticket to Santiago or Buenos Aires from any LAN Airlines gateway (New York, Miami, Los Angeles) in the U.S. or, presumably, Canada, as LAN has recently begun flights from Toronto to Santiago. Details are yet to be determined, but I will have more information soon and will explain them in person as well.

All talks will be followed by a question-and-answer period, plus some time to socialize with the author, bookstore priorities permitting. The dates are as follows (check each website for the exact time):

Thursday, October 2: Get Lost Books, San Francisco

Sunday, October 5: Village Books, Bellingham, Washington

Monday, October 6: Travel Bug, Vancouver BC

Tuesday, October 7: Wide World Books, Seattle

Thursday, October 9: REI, Saratoga, California

Tuesday, October 14: Idlewild Books, New York City

Wednesday, October 15: Geographical Society of Philadelphia

Thursday, October 16: Globe Corner Books, Cambridge, Massachusetts (note: event is not at the store itself, but at the nearby First Parish Church)

Tuesday, October 21: REI, Fremont, California

Monday, October 27: Distant Lands, Pasadena, California

Please also note that a few of these events are not yet up on their websites, but all of them are confirmed. Hope to see you there!

Tourism in a Very Small Place

Relatively few people have ever been to Easter Island - Rapa Nui to its indigenous Polynesian residents - but almost everybody knows something about it. Its enigmatic stone statues, made famous by Thor Heyerdahl (who asked big questions but got almost all the answers wrong), have become global icons. While the numbers who have seen them remain fairly small, tourism is growing every year as it gets easier to reach the island - in the middle of the Pacific Ocean, five hours from Santiago by jet - and the infrastructure mushrooms on a triangular land mass of only 171 square km (66 square miles), with a population of only about 4,000.

If the Chilean government has its druthers, the number of visitors (50,000 last year) may increase dramatically. According to the online Santiago Times, summarizing the Spanish-language original article in the Santiago daily El Mercurio, private investors and government are dedicating US$17 million to modernize the hospital, improve the airport, increase flights, and build even more hotel rooms (the island has about 1,500 beds in accommodations that range from simple B&Bs to Explora's all inclusive Posada de Mike Rapu). This amounts to more than US$4,000 for every man, woman, and child.

What's really startling is that an island that as recently as 2004 received only 24,000 visitors may get 200,000 by the year 2020. This could seriously stress natural resources - Rapa Nui has no potable surface water, for instance, and no easy options for solid waste disposal - on an island whose history has proven its vulnerability to environmental disruption.

The Pesos of Summer

Last April, as I flew from Santiago back to California, the Chilean peso stood at roughly 430 pesos per dollar, as tourism operators, fruit exporters, wine producers and others moaned that that the strong currency was undercutting their export-oriented industries. Around that time, I noted, UCLA economist Sebastián Edwards was predicting that the overvalued peso would reach an equilibrium of about 535 to 545 per dollar, thanks in part to central bank purchases. In turns out that Edwards was almost spot on - even after the US financial bailout crisis caused a 13-peso drop from last Friday's rate, this morning's peso stood at exactly 535.

Meanwhile, last week, Argentina's central bank had to sell off dollars to keep their peso from plunging against US currency, but the exchange rate has still fallen from 3.05 to 3.13 per dollar, even as the Buenos Aires Herald notes, in an editorial today, that "it is a supreme irony that so many people are flocking to buy dollars when they are the currency of crisis." In such a volatile international economic environment, it's hard to make any predictions but, given Argentina's inflation problems, about which I wrote in an earlier post, it's a good bet that Argentine prices will continue to rise - even though President Cristina Fernández de Kirchner appears to have finally acknowledged that a weak peso fuels inflation.

For the moment, Chile seems to have gained some competitive advantage with its devaluation but, given Argentina's volatile economic history, anything could happen there. The question is whether, in the aftermath of the US financial meltdown, many travelers will feel able to take advantage of two countries that, by most standards, are still affordable destinations for the upcoming southern summer.

Argentina's Red Deserts

Nearly two weeks ago, in the New York Times, there was a brief mention of northwestern Argentina, an area that gets plenty of European visitors but relatively few North Americans - despite its remarkable resemblance to the Four Corners area of Colorado, Utah, Arizona and New Mexico. The author of the article actually consults with Ian Mount, a U.S. journalist who writes the excellent Buenos Aires blog Good Airs. Ian, whom I've never met though he lives only a few blocks from me in Buenos Aires - somehow our schedules have never meshed - has some good suggestions including a visit to Estancia Colomé (pictured here) near the town of Molinos, in Salta province. If staying at Colomé is beyond your budget, it's still worth a detour to sample their outstanding wines.

Ian also mentions, as I would, that travel in this region is far more reliable by overnight buses than by air, as Aerolíneas Argentinas is still going through an awkward transition to state ownership. Flights are few to the northwest, so if you miss you'll likely have to wait an entire day for the next.

Chaitén Update

The other day, without concrete information, I speculated that the northernmost stretch of the Carretera Austral, from Chaitén south perhaps to the Futaleuf´turnoff, might be closed for upcoming season after the massive ashfall on Chaitén. This would have necessitated long detours through Argentina or a ferry to Puerto Chacabuco for travelers on the Carretera Austral, but a reader from Punta Arenas has informed me that ferries are presently operating from Puerto Montt to Chaitén. I had tried to verify this with Naviera Austral by phone, but was unable to contact them until today, when they informed me that ferries are sailing Tuesday, Thursday and Friday from Puerto Montt.

That does not mean, however, that travelers will be able to stay in Chaitén, which is still under tons of ash (as pictured here). Motorists will have to continue immediately and carry enough fuel to reach the town of La Junta, about 150 km (90 miles) south (where the next gas station is). According to my Punta Arenas reader, cyclists and pedestrians will not be permitted on the ferry, but the Naviera Austral office told me they would be. In any event, it looks as if disruptions along the highway will be minimal for the upcoming season.