(Bloomberg) -- The bus crawled into Uspallata, a remote village high up in the Andes Mountains, shortly after 2 a.m. and came to a halt. Inside were 30 Argentines. They had thick wads of cash stuffed in their pockets and big, bulky — and completely empty — suitcases stored under their feet.
The suitcases would get filled up quickly enough — with laptops, blue jeans, underwear, towels, frying pans, forks, spoons, knives, whatever could be frantically pulled off store shelves — just as soon as border officials opened up the snow-packed pass connecting western Argentina to Chile. That wouldn’t be for hours, though. So the Argentines waited, restlessly, by a roadside gas station in the frigid, pre-dawn darkness for the all-clear to go shopping.
“I am just anxious to hit the stores.” This was Maria Laura Bustos, one of the first to hop off the bus when it finally rolled into Santiago 11 hours later. She had come with her daughter, $1,100 and a shopping list so dreadfully long she knew she had no shot of buying everything in the 23 hours she had before the bus headed back to Argentina.
For thousands of Argentines, Chile has become the new go-to shopping center. They’re rushing over the border in unprecedented numbers, shopping at a dizzying clip and highlighting, in the process, an alarming development for President Javier Milei and his aides back in Buenos Aires. “The peso,” says Fernando Losada, a managing director at Oppenheimer & Co., “is overvalued.”
It’s so strong against other currencies, after inflation is factored in, that it’s eroding trade and investment flows and heaping pressure on Milei to devalue the exchange rate for the second time since taking office in December. The idea is anathema to him. The central promise of his campaign was to crush runaway inflation, a curse that has long plagued Argentina, and a devaluation would send prices soaring anew and undo much of the tepid gains his administration has made.
At first blush, of course, it’s difficult to conceive of the peso as a strong currency. It weakens 2% every month against the dollar in the official market — a gradual decline carefully orchestrated by government technocrats — after having plunged more than 50% when Milei devalued it in December. In less-regulated markets, the peso’s been sliding in recent weeks, too.
Its strength, or overvaluation as Losada and others see it, stems from the fact that inflation in Argentina, while slowing, remains high. Since the devaluation, consumer prices have soared more than 100%. And the monthly inflation rate is still over 4%, well above the pace of the peso’s slide.
All of this is making goods produced overseas cheaper for Argentines. As their wages catch up with inflation, each paycheck gives them more dollars to spend. But because the country has long had a series of prohibitive tariffs in place — they’re as high as 35% on some products — most Argentines don’t buy big-ticket imported items in the local market.
So at moments like this, when they suddenly have extra purchasing power in dollars, they take that cash over to Chile, which has much lower tariffs and a much more competitive retail market, and shop for imports there.
Smartphones are a big draw. So too are gaming consoles and tablets. All electronics really. A laptop was priority No. 1 for Bustos. She and her daughter hustled over to a big Santiago mall, where they scooped up a Lenovo for the equivalent of $620. (Back in Argentina, a similar model costs over $1,000.)
Once at the mall, they kept piling things rapidly in their cart: oatmeal, placemats, hand towels, bedsheets, pants, shorts, T-shirts, sweatshirts.
Much of the clothing came from H&M. Executives for the fast-fashion chain have been stunned by the number of Argentines shopping in their 28 Chilean stores this year. So much so that they’ve begun to tailor their staffing schedules — calling in extra store clerks — to Argentine, rather than Chilean, holidays.
Jose Manuel Castillo, who oversees H&M sales in Chile, Peru and Uruguay, says the Argentines are easy to pick out: They’re the ones lugging empty suitcases through the aisles. He puts the increase in sales to Argentines this year at about 200%. “Every month, there’s a new record.”
Castillo has seen similar booms in cross-border consumption over the past decade but never, he says, one that took off this fast. That echoes the concern expressed by many economists. Sure, the peso’s been strong in years past and Argentine shoppers have flocked to Chile — and, for that matter, into Uruguay, Brazil and even the US — before but it’s the magnitude and the speed of the exchange-rate swing now that’s alarming to them.
“The real exchange-rate appreciation has been much faster than in previous episodes,” says Alberto Ades, a director at NWI Management, a New York-based investment advisory firm.
Ades acknowledges that the peso has been, by some measures, stronger on other occasions than it is now.
The problem, he says, is that the Argentine economy today is far less robust and resilient than it was in previous decades. Worker productivity is lower and, critically, so too is the country’s stockpile of hard-currency reserves. (Milei’s plan to replenish reserves has stalled in recent weeks.) “So the equilibrium exchange rate has to be weaker today,” Ades says.
Milei and his spokesman didn't respond to requests for comment. He and his top aides have said repeatedly in public, though, that they see no need to devalue the peso.
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On the Chilean side of the border, the narrow highway plunges rapidly as it snakes its way through the mountains. It’s almost 8,000 feet down — in just two hours — to Los Andes, the first major town en route to Santiago. Here, Jonathan Santibanez is enjoying a boom in business.
Santibanez runs an auto shop that specializes in tire changes. Normally, he says, Chileans make up about two-thirds of his customers. This year, though, there are days when the vast bulk of the cars lined up outside his shop — some 80% or so — have Argentine plates. It’s a harrowing trip just for a tire change. But Santibanez charges about 40% less than garages over in Mendoza, Argentina. A new set of Dunlop tires for a Peugeot sedan, for instance, goes for about $430 at his place. In Mendoza, it’d cost more than $600.
Most of the Argentines who make the trek into Chile by car or bus are from the Mendoza area. It’s the closest major city to the border.
The number of travelers crossing into Chile through that mountain pass soared more than 100% in March, April and May to 225,000 before snowstorms blocked traffic for weeks in June. Bus tour operators are scrambling to add more trips. And travel agencies are popping up to offer packages to shoppers. The one-night trip — the one that Bustos chose — is the most popular.
Bustos says she’ll go again soon to get the items she didn’t have time to buy: a DeWalt power drill for her husband, Nike jogging pants for her son, Adidas Samba sneakers for her daughter.
Gabriela Funes is planning a second trip, too. She quickly blew through the $600 she brought this month. “I spent every last cent.” Next time, she says she’ll make the journey in her own car. She wants the extra space for bulkier items and, besides, she says, she’ll go grocery shopping there, too. She’ll pack the trunk with cans of tuna fish, mussels, chocolate bars, yogurt — just about everything, she figures, but milk and eggs.
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