Tourism industry in Argentina has been growing at a commendable rate in the past couple of years despite the global and local economic crisis. The industry is basically boosted by presence of magnificent natural assets. The country has an extended geographical extension that favors the presence of natural assets.
There are also rich cultural offerings that attract tourists. In January 2010, Argentina tourism industry recorded the strongest position in a period of ten years. According to world tourism news (2010, 1), the number of tourist grew by 10.2% in January 2010 compared to the last decade.
The government recorded 9.5 million passengers and the number was projected to grow by a big percentage in the following months. As stated by Enrique Meyer, the secretary of tourism in Argentina, the growth will accelerate in February and March 2010. The provincial and municipal tourism projected 11% growth by the end of January 2010.
According World tourism news (2010, 1), quoting the report by the bureau of market research and statistics secretary, stated that the growth of Argentina tourism industry for the last decade was a contribution of both local and foreign tourists. The number of foreign tourists to Argentina especially for summer season has been growing by 32% between 2003 and 2009.
Despite the strong position of Argentina tourism industry, the growth has not been consistent over years due to existence of economic crises in the country. These crises have significant effects on tourism industry. The objective of this essay is to explore the effects of the economic crisis on tourism in Argentina and the recovery process.
Effects of economic crisis on tourism in Argentina
The most recent economic crisis in Argentina was experienced between 1999 and 2002 and was a big blow to the economy. The crisis was associated with currency and financial crisis where the fixed exchange rate regime and government policies failed. The Argentina currency Peso was exchanged for US dollar at a fixed rate on 50-50 basis. This means that one US dollar was exchanged for one Peso. This made Peso to appear very strong compared to other currencies.
As a result, travel to Argentina from other countries which have weak currencies became quite expensive. This is because the exchange rate for Peso to other currencies was very high. Tourists found it too expensive to travel to Argentina. The number of tourists coming to Argentina declined sharply. Tourism industry suffered huge losses as a result. The trend was different to the local tourists in that the fixed rate of Peso against US dollar favored their travel outside Argentina.
It was cheap for Argentina’s local tourists to travel to countries which have a currency weaker than Peso. The tourism industry lost a lot of money that it would otherwise have earned from local tourists. Domingo Cavallo, the minister of economy in Argentina in 2000, had a policy of revamping the convertibility system of Peso against dollar and euro (Tonelson, 2002, 1). He proposed that Peso be exchanged on 50-50 basis against both dollar and euro.
This policy worsened the situation in the country because euro and US Dollar were at their strongest season. According to World Tourism Organization (2008, 1), travel to Argentina became extremely expensive and the number of tourists declined.
Due to the crisis of 2002, the government of Argentina under Eduardo Duhalde as president came up with a policy of devaluing Peso by 40% against the US dollar. This is following his allegations that the current recession was due to the convertibility system of Peso against US dollar and euro.
The devaluation of Peso favored travel to Argentina because it became cheaper. This increased the number of tourists coming to Argentina. However, most of the tourists who visited Buenos Aires, the most colorful tourists’ city in Latin America, had a different agenda.
Buenos Aires is a very attractive tourist city with many museums, diverse culture and beautiful scenarios among others. The city has very skilled doctors and health care system is well advanced. Most American tourists took advantage of the collapse of Peso and came to Argentina for medical tourism. They knew they will receive world class health care in Buenos Aires for only a fraction of what it would cost them in United States.
The coming of tourists from America therefore did not benefit the tourism industry in Argentina as was expected. They came to take the advantage of cheap world class treatment in Buenos Aires but not to tour the gorgeous scenarios of the city. They spent most of their stay in Buenos Aires in hospital instead of visiting the tourist cites in Argentina.
The economic crisis of 1999 to 2002 also caused political unrest in Argentina where there were demonstrations and riots of people dissatisfied with the government and its policies. This is because the government policies were affecting their businesses. For instance, fixed exchange rate regime made Argentina exports very expensive and undesirable.
According to Tourism Review (2008, 1), political unrest in any country scares foreign tourists because they fear that there might be insecurity in that country. Argentina was not exceptional and therefore tourism industry was affected.
The time of crisis also affected local tourists in Argentina as they reduced their spending on tourism. People tend to conserve their cash when economic times are unfavorable to cater for their basic needs and fear of uncertainty (Santana, 2003, 23). This caused local tourists in Argentina to reduce their spending on tourism.
The recovery process of tourism industry in Argentina
The recovery process of tourism in Argentina started in 2002 following the crisis that occurred from 1999 to 2002. The first step toward recovery was abolition of fixed exchange rate by the government of Argentina and return of political stability. Prior to this abolition, the Argentina currency, Peso was trading at a fixed exchange rate on 50-50 basis against the US dollar. This was unfavorable for tourists because travel to Argentina was expensive.
When Eduardo Duhalde took over power as president towards the end of 2002, he abolished fixed exchange rate and devalued peso by 40% against the US dollar. According to Argentina tourism report (2003, 1), devaluation of Peso made travel to Argentina cheap for foreigners. As a result, there was huge influx of foreign tourists from the neighboring Latin America and the rest of the world.
Devaluation of Peso also affected argentines travel to other countries. It became expensive to travel to other countries and therefore they found it cheaper to spend their vacation in their country. The number of local tourists in Argentina increased as a result
According to Argentina tourism report (2003, 1), the government of Argentina projected the number of foreign tourists to increase to 10 million by 2010 compared to 3 million recorded in 2001. To achieve this, the government plans to target North America and Europe as the main sources of tourists. The government also plans to adequately fund tourism infrastructure in order to improve their quality and quantity.
The exchange rate will also be maintained at the current level to favor the travel of many tourists to Argentina. To attract local tourists, the government will charge them a relatively low price than the foreigners. The secretary of tourism also announced the government’s commitment to formulate policies that will improve infrastructure, air transportation and other facilities that will ensure better services to the tourists.
Although tourism in Argentina was greatly affected by the economic crisis, the current steps seem to take it to a higher level. The commitment of government to boost the industry is a bright idea. However, the tourism industry should not limit the target market to the neighboring Latin America and Europe. Instead, the target market should be expanded to the rest of the world in order to fetch huge benefits.
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Santana, G., 2003. Tourism in South America. New York: oxford university press.
Tonelson, A., 2002. The real root of argentine financial crisis. New York: United States business & industry council. Available at: http://www.americaneconomicalert.org/view_art.asp?Prod_ID=47[accessed 14 may 2010]
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World tourism news.2010. Argentina: Tourism in January recorded its strongest Growth in a decade. [PDF] New York: Diversified Private Equity Corporation (DPEC). http://www.dpecpartners.com/about/news/industry/000315[accessed 14 may 2010]
World tourism organization. 2008. Tourism and financial crisis – 84th Session of the Executive Council of UNWTO. [PDF] U.S: UNWTO. Available at: http://www.eturbonews.com/5628/tourism-and-financial-crisis-84th-session-executive-council-unwto [accessed 14 may 2010]