Uruguay: Fuel prices drop on the border due to the large gap with Argentina

RIO DE JANEIRO, BRAZIL – The price gap with Argentina, which has widened recently, is a concern for businessmen on the Uruguayan coast and mayors of border departments. Recent increases in fuel prices in Uruguay prompted departmental leaders to call for an additional reduction, pointing out that it is currently even more common for Uruguayans to cross the border to fill up on cheaper gasoline and diesel in the neighboring country.

That claim was echoed this week by the government, which on Tuesday confirmed a measure on the issue. In a meeting with the mayors of Río Negro, Omar Lafluf, and Paysandú, Nicolás Olivera, President Luis Lacalle Pou announced that the government will introduce an additional reduction for gasoline in border areas that already enjoy tax benefits in areas 20 kilometers from the national border through the reduction of the Special Internal Tax (Imesi). The new provision will take effect on May 1.

Read also: Check out our coverage on Uruguay

“The amount of the internal specific tax on the sale of gasoline will be reduced by up to 30% of the sale price,” says the decree sent by the president to mayors. Previously, the refund was 24%.

Lafluf told Bloomberg Línea that the government continues to analyze measures for other products, while Olivera highlighted the “gesture” of the executive, although the problem of competitiveness will persist in practice. In addition to fuels, the price differential, especially in food, will also be discussed.

“Of course, the exchange rate differential is miserable. There are no means to compete with Argentina’s prices because the difference is exponential, but this is a very positive gesture by the government, which is responding in a timely manner,” the mayor of Paysandú told Bloomberg Línea.

At gas stations located 20 kilometers from the border, there is the Imesi discount on gasoline for those who pay with credit or debit cards. Thus, a liter of supernaphtha in Uruguay costs about 59 Uruguayan pesos per liter, while in Argentina it costs between 23 and 27 dollars in Uruguayan currency. In the rest of Uruguay, a liter of supernaphtha costs $77.88 per liter.

Salto Mayor Andrés Lima told Bloomberg Línea that despite the government’s “efforts” to tax it, the new fuel regime at the border “will not stop Uruguayans from continuing to drive to Concordia.” “With this, there is still a very big difference, two to one,” he said. “The situation is not going to change in the short term. Also, this is not something that is happening now. This has been going on for years now,” he added.

The mayors are also calling for small-scale food imports to be allowed. This would allow Uruguayan traders to obtain licenses to import produce from Argentina and then resell it. According to El Observador, the Ministry of Economy and Finance is negotiating with coastal traders to implement the law in terms of allowable limits and product families. “Every day we are talking about a complex competition for national companies that was not so viable during the pandemic. Today we have to have a different vision,” Lacalle Pou said at a press conference Tuesday.

The situation, in part, is something that actually happens with Uruguayans crossing the border to buy a selection of cheaper products on the Argentine side. “The problem is that this is happening without a legal framework. So we are saying that since this is indeed the case, we should create a legal framework that will generate revenue for the national government. We are thinking of a rate of 3% or 5% of the goods, and that what the people of Salta are doing today can be done by traders,” Lima said. The mayor warned that “in the long run” the unequal competitiveness will lead to the closure of stores on the Uruguayan side.

PRICES ON THE BORDER

The latest border price indicator, conducted in January by the Catholic University of Uruguay (UCU), showed that a representative basket of goods is 56.57% cheaper in the city of Concordia than in the city of Salto when buying a set of selected goods. From Concordia’s perspective, the indicator shows that Salto is 130.3% more expensive than Concordia.

The UCU Economic Observatory’s study at its Salto campus shows the gap has widened since 2017. “This relative price increase reflects both economic factors of the Argentine and Uruguayan economies, as well as the evolution of the nominal exchange rate and domestic prices in their respective markets, and the pricing strategies of the companies studied. It is also observed that the price differential is significantly higher for goods imported from Uruguay,” the report states.

Between May 2021 and February 2022, cumulative inflation in Argentina was 39.63%. During the same period, fuels increased by only 9%.

According to the UCU study, the highest incidence is in the food and beverage category. The measurement examined 30 items in this category and found that the price difference was 152% for the total price of the item. This is equivalent to saying that Concordia is 60.3% cheaper. According to the January report, a liter of gasoline in Salto was 164.9% more expensive than in Concordia, and diesel 119%.

With information from Bloomberg