Of Costs, Currencies, And Quality Of Life

Dec. 5, 2011, Mendoza, Argentina: The cost of living in Mendoza, Argentina, has risen sharply in peso terms over the past three years, but the quality of life in this beautiful region of Argentina is hard to beat.

Dear Live and Invest Overseas Reader,

"It was lunchtime in Mendoza, Argentina," writes Correspondent Susan Rensberger, "but I still had errands to complete before I stopped to eat.

"One thing I love about my new neighborhood in Mendoza city center is that I can walk to everything, including excellent restaurants that serve more Mendocinos and expat residents than tourists. I stopped at one specializing in seafood to ask about their daily menu ejecutivo. This is a fixed-price lunch available at most restaurants in town that represents a good value. The waiter said they were offering a choice of beef or fish, with a glass of wine and dessert, for 45 Argentine pesos. That's about US$10.50.

"By the time I completed my errands and returned to the restaurant for lunch, they had closed the door for the afternoon. I knocked anyway. When he opened the door, the waiter told me not to worry about the time and invited me in to eat.

"I walked through the empty dining room to a patio with a grape arbor on one side where the only diners were the two waiters and some friends. I chose a table under an ancient bougainvillea with pink blossoms facing an ivy-covered brick wall. The table was dark wood made in the rustic local style, the napkin white linen. The waiter brought fresh rolls with two dipping sauces and a glass of an excellent dry rosé. A fish fillet arrived perfectly grilled on a bed of smoky-tasting grilled vegetables.

"When my waiter brought out a bottle of malbec for his friends, he poured a glass for me, too. Before they drank, they raised their glasses to include me, and we all toasted each other, the food, the sunny day, the cooling shade, and life in general. Dessert or coffee to finish the meal? I chose dessert--ice cream with strawberries and raspberries--so that I could take a nap afterward.

"When the waiter unlocked the front door to let me out, I told him I had just moved in nearby and would be back. 'So we're neighbors,' he replied. 'Sin horario.' In other words, our doors are always open to you.

"Compare that experience to the fast food hamburger and soda I bought in Atlanta a few weeks ago for US$6.41, with a choice between eating in a plastic-furnished dining room or in my car. For just US$4 more, I not only got a full meal of higher quality with wine, but also gracious, personal service and a lovely setting.

"It's true, of course, that prices have risen noticeably in Mendoza since I was last here, last April. Then, a fixed-price lunch, the menu ejecutivo, cost between 28 and 40 pesos (US$6.60 to US$9.40 at today's rates).

"Seeing this, when I arrived back in October, I posted a question about how much prices have risen in this part of the world on the Facebook page of the Mendoza Expat Club. The responses I got explained that prices in pesos have risen dramatically over the past three years in Mendoza and in Argentina in general. This has been partially but not entirely offset by increases in the value of the U.S. dollar against the peso.

"One woman wrote, 'When we moved here in March of 2008, we could buy a filet of beef for 19 pesos a kilo. Last week I paid 47 pesos a kilo at the same meat market. Coffee was about 10 pesos a kilo then, and now it is 36 pesos. Sugar was less than 2 pesos a kilo, but now it is almost 5 pesos at the same supermarket where I usually shop.

"'The rent for the second house we lived in, in Chacras de Coria, started out at 3,700 pesos a month in October 2008 and went up 10% every 6 months per the contract with the owner to almost 5,000 pesos by the time we moved out earlier this year. In October 2008, the dollar was 1 to 3.08 pesos. Now it is 1 to 4.28, so it has not kept up with the inflation here.'

"Another expat, who helps international investors and homeowners purchase properties and get business services, responded, 'In short, the exchange rate between the U.S. dollar and the peso is not spreading at the same rate as inflation is increasing in pesos. I would say that annual inflation in Argentina in peso terms is about 25% on average, whereas the annual inflation in dollar terms is about 12%, give or take a few points.'

"So, yes, the cost of living in Mendoza has increased noticeably since I've been away, but what strikes me more upon my return is not the cost of living here...but the quality of life.

"In the nearly six years I've been living outside the States (in Panama, in southern Spain, and in Argentina), this is something I've learned. When choosing a place to live, even for a few months, you want to consider not only local prices, but, more important, what quality of life your money can buy.

"For me, a good quality of life has to do with the architecture and the landscape of a place. I prefer to be somewhere that attracts people from all over the world and where I have many options for culture and entertainment.

"There's an intangible factor, too, that's important to me and that I think of as 'flow.' In some places, everything comes easily for me. I make new friends, find the right apartment, make business connections--all with little effort. In other places, life seems more difficult.

"For me, Mendoza is one of those places where I'm in the flow. And I'd say this is true for lots of other expats, too. The economy is strong, there's an international community of Europeans, North Americans, and others, local people are welcoming, and strong foreign investment in the wine, tourism, housing, and hospitality industries mean lots of business opportunities, too.

"I know one expat couple that opened a small restaurant serving American food and can't keep up with demand, not from expats but from Mendocinos. I know another that bought a piece of land and is putting in a vineyard and a third couple that has started a winery using grapes they buy rather than grow.

"For me, for all these reasons, the quality of life in Mendoza is about as good as it gets. Of course, nobody likes inflation, and those of us living here all hope inflation stops driving up prices. Those of us living on U.S. dollars also hope the peso is devalued again...and recent changes in Argentine government policy may foreshadow that happening.

"Argentines trust the value of dollars more than pesos, so they like to keep their money in dollars as much as possible, and out of the banks. Just after the recent election, the Argentine government decided that too much of its own dollar reserves were being bought up, so it imposed currency controls that made it difficult for Argentines or even U.S. citizens to buy U.S. dollars. Scarcity promptly drove up the price on the black market. There seems to be a widespread belief that the government will have to face reality sometime in the coming weeks or months and devalue the peso to reflect its street value. That would mean that every dollar would buy more pesos and, in turn, more Argentine products and services.

"I asked Steve Rosberg, an Argentine economist and founder of Ushay, a real assets investment management company, for an Argentine's view of inflation and the likelihood of a peso devaluation. Steve cites two causes for rising prices in Argentina as measured in U.S. dollars: Argentine prices rising faster than exchange rate correction over recent years and the loss of purchase power of the U.S. dollar itself.

"The first trend, Steve predicts, probably will be reversed in the near future by a further devaluation of the peso. The second trend--that of U.S. dollars buying less, everywhere in the world--probably will accelerate, he predicts, as more and more paper currencies gradually lose their purchasing power.

"One way Argentines hedge against inflation is by buying real estate. A Chilean friend who has lived and owned rental property in Mendoza for eight years says that, because Argentinians don't trust banks, 'One of the very few places left to invest in their view is in bricks.'

"Rosberg agrees. He says that because Argentina has had very little credit since the 2001-2 crisis, asset prices--for real estate, farmland, vineyards, and so on--are not inflated by the availability of easy credit.

"'Property prices reflect their intrinsic value,' Steve says, 'and offer an opportunity for anyone wanting an alternative to holding paper--which can always be printed with more zeros.'

Kathleen Peddicord

Editor's Note: Economist and investor Steve Rosberg is one of the experts behind our new "How To Retire Overseas Kit." You can read and listen to more of his insights and recommendations related to the current investment climate and current investment opportunities in Argentina here.Continue Reading:

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Kathleen Peddicord

Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group. With more than 25 years experience covering this beat, Kathleen reports daily on current opportunities for living, retiring, and investing overseas in her free e-letter.

Her book, How To Retire Overseas—Everything You Need To Know To Live Well Abroad For Less, was recently released by Penguin Books.

Read more here.

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