Plan to revive Argentina's tourism industry faces hitches

Plan to revive Argentina's tourism industry faces hitches

Event - The Argentinian government's plan to reopen its borders to international tourism is facing delays. Nonetheless, it is looking to offset the impact of these setbacks on the hospitality industry through an initiative aimed at promoting domestic tourism; however, the measure is likely to provide only modest relief.

Analysis
The government had planned to carry out pilot tests with Chile and Uruguay in early September, as a first step towards restarting bilateral tourism flows. However, these plans were suspended owing to a lack of consensus around the strictness of health and sanitary protocols that should govern the tourism reopening. Although Covid-19 cases in Argentina have been falling consistently since early June, the health officials remain concerned about the possibility of a third wave of the virus stemming from the more infectious Delta variant. By late August the Delta variant had become the dominant strain in Argentina, accounting for more than two-fifths of all new Covid-19 infections.

Against this backdrop, the authorities have indicated that any border reopening would probably have to be pushed back until late October or early November. This development represents another setback for the hospitality sector, which continues to bear the brunt of the pandemic. As at June the hospitality sector was still 59% below pre-pandemic levels, whereas activity overall was just 3% below pre-pandemic levels. However, when inbound international tourism does eventually pick up, Argentina stands to benefit significantly. Following steep devaluations in 2018-19, and notwithstanding renewed real currency appreciation from early 2021, the Argentinian peso is cheap for foreigners. In US dollar terms, the cost of living is substantially lower in Argentina than in virtually all of its tourism source countries.

Meanwhile, the government hopes to support the hospitality industry by promoting domestic tourism through its "PreViaje" initiative, which subsidises tourism-related activities for Argentinians. Under the scheme, the government will reimburse 50% of the amount spent on advance bookings of tourism-related activities (including travel, lodging and tours) between November 2021 and December 2022. Although the programme is a positive step, it will not fully compensate for the lack of higher-spending clients from abroad in the short run, especially given that domestic household incomes remain well below pre-pandemic levels.

Impact on the forecast
Recent setbacks present risks to the near-term outlook. However, we still expect tourism activity to normalise in 2022. External demand will be crucial to supporting economic growth, given that pending policy adjustments will constrain domestic demand.

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