by Silvana Avellaneda, Victor Ovando, and Thomas O'Neill, MAI, CHA, HVS Miami Office
Argentina, after decades of military rule, has enjoyed ten years of full democracy. The latter is the primary factor responsible for the significant economic recovery which has teaken place in the country. The country's current government has reversed the economic trend of the last 50 years, which was characterized by stagnation, inflation, and decline in all of the economic variables that resulted in a deterioration in the standard of living. In the 1980s, the economic crisis deepened as management of public finances deteriorated leading to hyperinflation and a sharp reduction in output and investment as confidence was eroded, and the economy became increasingly "dollarized."
The new government, which took office in July, 1989, attempted to curb hyperinflation through a market economy that included cutting spending and raising revenues, closing or privatizing state companies and banks, eliminating price controls, reducing tariff and non-tariff trade barriers, tax reform and open market operations designed to stabilize the economy. Structural economic reforms initially brought further recession, unemployment and declining living standards. By 1992, however, recovery in investment was marked, inflation was down, and growth was recorded. Much of the increase in economic growth and confidence was attributed to the Currency Convertibility Law of March 27, 1991, which requires the domestic currency to be fully backed by U.S. dollars, so that monetary expansion is limited by the growth in international reserves. As a result, inflation has dropped from approximately 5,000% in 1989 - to 3.6% - in 1994. Additionally, the Mercosur common market uniting Brazil, Paraguay, Uruguay, and Argentina has been in effect since January, 1995, whereby most products enjoy free tariff trade.
The reorganization of the Argentinean economy, implemented since President Carlos Menem assumed office in mid-1989, has created an unlimited number of investment opportunities. In the period between 1991 and 1994, Argentina had the world's third most rapidly growing economy. In 1994, industrial exports sharply increased, inflation decreased, wholesale prices were stable, and both investment and industrail production continued to rise.
It is too early to judge the long-term success of the economic program. Recent concerns over devaluation motivated Argentines to transfer over $7 billion from local to foreign banks. Issues that need to be overcome include:
However, it is evident that the Menem administration appears to be committed to the success of the economic programs, and that there is public support for the current reforms. It should be noted that a constitutional amendment approved in 1994 allows re-election of the current government for a second four-year term. It is strongly believed that the current administration will be re-elected in the upcoming elections that will take place in mid-1995.
The number of foreign visitors to Argentina has been continuously increasing since 1986. It is estimated that of the total number of visitor arrivals, 42% travel by land (car, bus, or train), 34% enter by air (practically all international flights arrive in the country through the Buenos Aires airport), and the remaining 24% arrive by water. Heavy visitation by land illustrates the importance of an adequate road infrastructure, coupled with the lack of airports throughout the country (see the table entitles, Historical Trends in Foregin Visitation: 1983-1993, which shows trends in foreign visitation to Argentina).
Of the total foreign visitors, approximately 72% are travelers from the bordering countries, while 12.5% of the arrivals are from Europe, and 6.2% from North America. The average growth rate in the period from 1983 to 1993 was 10.4%. Due to a recent promotional campaign, the economy's growth, and the Mercosur common market, the number of visitors has increased continuously throughout the 1990s. The North American market presented the highest average growth rate during this period, followed by the European market. In addition, according to the 1993 Secretary of Tourism statistics, the neighboring countries' visitors had an average stay of five days per trip, and spent approximately $85.50 daily, while tourists from more distant countries had an average stay of 10 to 12 days, and spent an average of $168.00 per day.
The table displays statistics of hotel supply in the provinces of Argentina.
The largest room supply can be found in the major cities and the resort areas, including Buenos Aires, Federal Capital, Cordoba, Neuquen, and Rio Negro. The hotel supply in Argentina is very limited in relation to the country's importance and development. Of the total hotel supply, it is estimated that roughly 4.0% falls within the Five-Star category; 11.4% is categorized as Four-Star; and the remaining 84.6% belong to the One- to Three-Star categories of hotels.
The dramatic improvement over the last five years of the country's economy has led to a degree of stability that has attracted the attention of the international marketplace. The limited hotel room supply, which is characterized by low quality and poor service, indicates that there is a need for lodging facilities. There are a number of hotel companies and developers who are turning their interests toward Argentina, due to demand growth from both commercial and leisure travelers.
The current state of the Argentinean hotel industry, coupled with the economy's improvement and projected growth, bodes well for future hotel development.
For the complete country profile please contact the HVS Miami Office listed on page 11. Other profiles available: Colombia, Costa Rica, Mexico, Peru, and Venezuela.
The Hotel Valuation Journal