80% less in spent in tourism abroad whit credit cards - IDESA

Report Nº: 94110/12/2021

80% less in spent in tourism abroad whit credit cards

The government decided to prohibit the purchase of trips abroad with credit cards installments. The measure raised people’s rejections, although it has a low economic impact. This is explained because card payments abroad are far below what they were in 2017 before the exchange rate crisis broke out in 2018.

The Central Bank prohibited credit cards installments to make tourism abroad. This restriction is in addition to others imposed by the national government on foreign travel. The first one is the “cepo” that limits the purchase of dollars in the official market. The second is the “Tax for an Inclusive and Solidarity-based Argentina (PAIS)” which is 30% of the dollars purchased or services paid abroad. The third is the withholding of 35% of the dollars acquired in advance of Income Tax.

From the instrumental point of view, the measure is technically weak. Individuals may pay the total amount for tourism expenses abroad and then finance them by paying only the monthly minimum. Or, they can take a local loan in pesos to pay such expenses. Nevertheless, this is just another administrative complication that irritates the people and deteriorates the quality of life of the population.

Given that the objective is to discourage foreign travel, it is then necessary to evaluate the possible impacts. For this purpose, data from the Central Bank itself are useful. According to this source, card expenditures abroad had the following behavior:

  • Between January and October 2017, U$S 9,000 million were spent.
  • In the same period of 2019, US$ 5,500 million were spent.
  • In the same period of 2021, U$S 1,700 million has been spent.

These data show that tourism spending abroad was very high in 2017 when the exchange rate was appreciated but then fell by almost half in 2019 as a result of the exchange rate crisis. In the current year, the drop exceeds 80% because of the travel restrictions imposed by the pandemic on top of the exchange rate crisis. The sanitary measures relaxation and vacations will recover tourism abroad. However, it will remain still at levels much lower than those recorded before the crisis. In this perspective, the measure is unpopular and has little to contribute in terms of foreign exchange savings.

Another curious fact is that while restrictions to travel abroad are multiplied, subsidies to Aerolineas Argentinas are also multiplied, which encourages many Argentines to take their vacations abroad. It is unjustifiable to use public funds to support an airline company. But a minimum of coherence demands that its flight offer be focused on foreigners visiting tourist areas of the country or Argentineans traveling for business.

The underlying problem is the hypocrisy of pretending that the dollar keeps an artificially low value. It is evident that at $100, the Central Bank has no possibility of supporting the dollar. That is why the “cepo”, the PAIS tax, and the withholding of income tax were established. As this is not enough, now the prohibition of purchases abroad in installments has been added. But at the same time, as this artificially low value discourages foreign tourism, a cumbersome mechanism of bank accounts for foreign tourists was regulated so that they would supposedly be able to exchange their dollars at the black market exchange rate.

Until the macroeconomic imbalances are fixed, the exchange rate control is the tool to avoid the worsening of inflation and the consequent people’s impoverishment. Nevertheless, it does not justify the absurd bureaucratic tangle that multiplies the opportunities for corruption when it comes to tourism. Allowing a tourist dollar to operate freely would promote the entry of foreign tourism and make life easier for Argentines who want to travel abroad. Furthermore, it would also help if Aerolíneas Argentinas stop conspiring against the objective of protecting reserves.

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