Bargains in Argentina, for Now

macriFive years ago, not many Argentines thought the splintered opposition would unite behind one candidate to win the presidency away from the Peronists. And yet it did – Mauricio Macri is the new president, and he’s already been changing economic policy in Argentina dramatically. So how will it affect wine exports?

Obviously this question is a small one in the grand scheme of things, but we’re here to talk about wine. One of the new administration’s first actions was to remove the restraints on Argentina’s currency, the peso. Previously, the central bank had used its reserves to buy pesos and prop up the currency’s values artificially. Moreover, Argentines faced restrictions on trading pesos for other currencies.

Together, these measures created a black market where the value of the peso was markedly lower. But exports and other monitored transactions had to use the higher official rate. Not surprisingly, when the peso was allowed to float freely on international markets, it lost roughly 30% of its value to settle closer to the black market rate.

In the short term, this means Argentine wines are cheaper for importers. Two things may happen, though: (1) importers may decide not to pass these savings on to consumers, and (2) exporters may simply raise their prices in pesos so that the prices in dollars are similar to before. The latter may happen to some degree simply because Argentine winemakers have to import a lot of their equipment and raw materials. If any savings are left, only competition between importers will ensure that consumers feel the benefit.

The peso may start to gain value back, too, if Macri has his way. He expects to spur an onrush of foreign investment (and domestic investment) by settling Argentina’s debts, returning to the global financial markets, and restructuring the economy in several important ways. With more money coming from abroad to buy assets in Argentina, the peso will feel a push upward.

That will take time, though. In the short term, Argentine wines should offer marginally better values to American consumers. But the best way to take advantage of the lower exchange rate, of course, is to go to Argentina.

Because Argentines’ incomes haven’t changed much, prices for wine in Argentina haven’t been able to rise by as much as the exchange rate fell. So the wines Argentines buy will be significantly cheaper to foreigners in terms of their own currencies. Now is the time to fill your luggage with Argentina’s best bottles, including the gems that don’t even make it to export markets. Salud!

Back to Argovino