Argentina’s varying exchange rates are an aggravating factor to high inflation affecting the local construction sector, which has seen costs soar by more than 100% in the past year, according to local infrastructure players.
While construction inflation is a global reality, with prices increasing on average 15% over the past four years due to factors such as the COVID-19 pandemic and Russia’s invasion of Ukraine, Argentina’s foreign currency regulations add another layer of challenge, according to Fernando Lago, general manager of the country’s construction chamber Camarco.
“Supply imports in general should be paid at the official dollar exchange rate, which is the cheapest on the menu. But it suffers from massive operational difficulties. A procedure named SIRA [import system of the Argentine republic] is needed, which takes an undetermined amount of time, and that of course affects times and schedules, costs and work continuity,” Lago said when answering a question from BNamericas during a webinar.
He said that there were cases in which the completion of rail construction works was delayed due to problems importing nails to fix the rails in place, which did not even represent 0.1% of the project’s total cost.
A similar view was given by former Camarco president Julio César Crivelli, who criticized the official restrictions on currency exchange in general.
“It produces all types of abnormalities because this measure is taken to restrict access to foreign currencies as a ‘remedy’ to inflation. As a result, ‘official’ dollars are hard to obtain for equipment and supply providers, and therefore there’s a whole new uncertainty that harms contract prices,” he said during the event hosted by the chamber and the Inter-American Construction Industry Federation (FIIC) on the effects of inflation on public works contracts.
As a result of the high prices and instability, public works tenders in Argentina have seen bids that often double or even triple the official budget.
Following the August 13 primaries, which saw libertarian Javier Milei win the most votes for president and current economy minister Sergio Massa coming third, the government opted to devalue the peso’s official exchange rate.
FIIC’s vice president Iván Szczech said during the Camarco webinar that a meeting between representatives of over 150 local construction firms after the primaries said the devaluation, which lowered the official exchange rate by 18% against the greenback and up to 50% in the case of some unofficial rates, caused disruption in supply deliveries.
“Some materials weren’t delivered, or in the case they were delivered they came with ‘open invoices’,” he said, describing a practice in which suppliers only set a price once resupplying costs are clearer, which in Argentina is even more complicated because of the differences between the exchange rates and inflation, he said.
Annual inflation is currently running at well over 100%.
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