Politica y Economía

Border bazaar

11/02/2016 The Economist

THE backwater Colombian town of La Hormiga near the border with Ecuador has experienced many booms and busts. In the 1990s there was coca, the raw material for cocaine. That frenzy ended when herbicide-spraying aeroplanes destroyed the crops. In the 2000s a pyramid scheme made many townsfolk rich, then ruined them. The government shut it down in 2008.

Today La Hormiga, a sweltering town surrounded by pasture in the department of Putumayo, is experiencing a somewhat more salubrious sort of boom. Merchants are cashing in on the sharp depreciation of the Colombian peso against the United States dollar, which Ecuador uses as its currency. The peso lost a quarter of its value in 2015 and continues to slide this year. This has been a windfall for Ecuadorean shoppers living near—and sometimes not so near—the border, and for Colombian shopkeepers who serve them.

“We can buy things 50% cheaper here than at home,” says Juan Carlos Andrade, who on a recent weekend drove for four hours from Coca in Ecuador to Putumayo with his family. They returned in a car laden with clothes and nappies for their two small boys. In Ecuador a pack of 50 Huggies nappies costs $18; the Andrades bought one in La Hormiga for the equivalent of $7.

As well as selling more, merchants in La Hormiga are charging higher prices. The price of clothes has doubled over the past year while that of fruit and vegetables has risen by 30-40%, according to Fernando Palacios, the town’s mayor. Shops and bakeries are diversifying by providing pop-up currency-exchange services. A ticket seller at a roadside bus terminal moonlights as a money changer, buying dollars at 2,800 pesos and selling them to banks at a rate of around 3,200, making a handsome profit for little effort.

Not everyone is happy. Residents of La Hormiga accuse shopkeepers of price-gouging. Mr Palacios has urged local merchants to show restraint. “I told them that if they keep raising prices the Ecuadoreans will shop elsewhere and locals will, too,” he says.

Retail tourism is also a worry for Ecuador’s government. The country adopted the dollar as its currency in 2000 to escape from hyperinflation. Its current strength, along with weak productivity and low prices for oil, Ecuador’s biggest export, helped make the economy contract by an estimated 0.6% in 2015. Colombia, by contrast, grew by around 3% last year and should grow by more than 2% in 2016 despite the oil slump, in part because its weaker currency is expected to boost non-oil exports.

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