Where the Dollar Rules

Where the Dollar Rules
U.S. Currency Can Still Buy A Great Vacation -- In South Africa
By STAN SESSERMay 3, 2008
In the center of South Africa's wine country, about an hour's drive from Cape Town, travelers can stop at the elegant Wijnhuis restaurant in Stellenbosch and order a flight of six local wines. The cost: about $4.
A vineyard in Stellenbosch, South Africa.
Americans venturing through this area could be excused for thinking that they've gone back in time, when U.S. currency was king. In recent months, the dollar has plunged around the world. In late April, the euro reached a record high against the dollar, with one euro briefly costing more than $1.60. It now costs about $1.54.
But things are different in South Africa. In the past year, while the dollar has plummeted in Europe, Japan and almost everywhere else, it has risen in value in South Africa -- and in at least six other places. Some of them, including Iceland and South Korea, have such a high cost of living that a tourist won't notice any bargains. But three countries -- South Africa, Argentina and Indonesia -- allow Americans to revisit the days of the dollar's glory.
Planning a summer vacation to one of these countries helps counterbalance the sticker shock that comes from taking a vacation almost anywhere else. In Paris, a fixed-price dinner at the Michelin-three-star-rated Guy Savoy goes for about $430, not including wine. In London, the cash fare for a one-stop subway ride from Piccadilly Circus to Leicester Square is $8. In Rome, the cheapest double room at the Grand Hotel de la Minerve costs more than $600 a night, and if you and your partner want breakfast the next morning, that will add $100 to the bill.
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The Journal's Stan Sesser offers some alternate international travel destinations where a buck still goes a long way.
In the past two years, the euro has gained about 25% against the dollar. The drop in the U.S. currency has reached the shores of China, with the yuan, which was pegged to the dollar until 2005, rising about 18% since the peg ended.
According to calculations by Black Swan Capital, a Florida currency-advisory company, two currencies have been especially hard hit, South Africa's rand and Iceland's krona. The rand has dropped about 26% against the dollar in the past two years, while the krona is down about 22% against the dollar from its peak last November.
In the other five countries -- Argentina, Indonesia, Mongolia, Pakistan and South Korea -- the dollar has risen considerably less, but it still buys more of the local currency than it did a year ago.
Add to this list Hong Kong and the United Arab Emirates, whose currencies are pegged to the dollar, and Ecuador and Panama, which use the greenback as their local money. In these places, at least, the dollar is still a dollar. (Black Swan's calculations, from a database of 44 major currencies, also show the British pound dropping less than 1% against the dollar the past year. But that doesn't come close to offsetting the pound's gain of 13% the year before.)
For economy-minded travelers, South Africa is the place to go this summer. But move quickly, advises Colen Garrow, an economist for Brait, a private-equity firm in Johannesburg. Mr. Garrow thinks the rand is undervalued by at least 15%. "We could see the rand bouncing back quite smartly," he said.
The rand has fluctuated widely since the end of apartheid in 1994, depending on South Africa's economy and political stability. Mr. Garrow lists several reasons for the decline, including a big balance-of-payments deficit necessitated by public spending for infrastructure, which requires imported goods; serious electricity shortages that raise the question of whether mining and other industries can continue to expand; and political concerns in the region, particularly in neighboring Zimbabwe.
Another reason to act quickly in a country like South Africa is that a lowly valued currency makes oil and other imports more expensive, which could fuel inflation and eat up any bargains for tourists. South Africa's inflation rate is more than 9%. In Argentina, inflation has been a problem for years. "The government has had a policy of deliberately depreciating the peso to make the economy competitive and discourage imports," said Federico Thomsen, a Buenos Aires economic consultant for corporations. "The price Argentina is paying now for that policy is rising inflation."
South Africa is about to enter its winter season, which is the best time to go on safaris to see wildlife. Winter around Kruger National Park is the dry season, when there's much less vegetation that would block the view of the animals. And Kruger has its share of bargains, since it is dotted with public safari camps that undercut the prices of the private camps in and around the park.
A giraffe in South Africa
Leigh Kemp of Go2africa.com, a travel company that books safaris, says that at the public camps, two people can stay in a comfortable chalet, eat dinner and take morning and afternoon safari excursions for $230, while the private game lodges charge between $400 and $1,500 per person a day, all-inclusive.
Safaris and meals aren't the only bargains in South Africa. Although flying to the country can be expensive, the two-hour flight between Johannesburg and Cape Town on South African Airways is less than $100 each way, and on competing budget airlines a round trip can be bought for $120. Both Johannesburg and Cape Town have some four-star hotels with rooms for between $100 and $150 a night.
The flight of six wines at Wijnhuis restaurant represents the other side of the coin from a $440 dinner in Paris. From a list of 10 whites and 10 reds, diners choose six, and the six glasses are brought to the table on a little wooden rack. For 30 rand, about $4, it is a perfect way to sample the progress the South African wine industry has made in recent years (wine prices resemble those in California and France 30 years ago). When restaurants in the U.S. offer such tasting flights, the price often is between $20 and $40. Moreover, the $10 to $15 that Wijnhuis charges for its main courses (including about $12.70 for a sirloin steak) is typical of many of the best South African restaurants.
A tour agency called a Taste of Africa offers a half-day walking tour of Soweto, the huge black township adjacent to Johannesburg, with a local guide for $13. The guide can take travelers to a shebeen, the township version of a pub, where a quart of beer is 95 cents. Some argue these township tours give a valuable education about the continuing problem of poverty in South Africa, while others consider such tours degrading to the local people.
The low prices for tourists exchanging dollars present a real anomaly, because for South African residents earning rands, life is anything but a bargain. "South African consumers are experiencing a hardship they haven't seen for years," said Mr. Garrow, who notes that food and energy prices as well as interest rates have skyrocketed. "What is cheap," he added, "is anything associated with tourism, because of the extent that the rand is undervalued."
A downside to South Africa: Crime can be a problem in the country, particularly in cities such as Johannesburg. Tourists are advised to take sensible precautions, such as not leaving cars in unfamiliar areas and using a taxi at night instead of walking.
Buenos Aires neoclassical building.
In Argentina, before an economic crisis hit at the end of 2001, the peso was trading one-to-one with the dollar. Today, a dollar buys more than three pesos. In a land known for superb beef, a steak at a nice restaurant costs about $12, and it is less than $10 at more-modest places. A subway ride is 25 cents and a 20-minute taxi ride is about $5. Like South Africa, many small, stylish hotels are available in the $100-to-$150 range.
But inflation is eating into the bargains. "We have seen prices rise significantly in the past few years in places tourists go," said Mr. Thomsen.
Indonesia, the third country on the list that is a haven for tourists, offers a dual benefit: First, the rupiah has remained relatively steady with the dollar for the past two years, even declining slightly. Second is the low prices inherent in any developing country where workers are paid rock-bottom wages.
Balinese temple, Indonesia
As a result, Indonesia is the home of $2 taxi rides, $10 dinners and decent $60 hotel rooms if you avoid the international chains. It also has domestic airlines with questionable safety records, appalling air pollution in the big cities, and crime that requires vigilance. Bali is the country's major tourist draw, but the island has suffered terrorist attacks, and the country is on the U.S. State Department's travel warning list.
Bargain isn't a word associated with Iceland, which is undergoing a financial crisis that has taken a severe toll on its currency, the krona. Iceland's banks, which became players in international finance by expanding overseas, have gotten snarled in the U.S. subprime-mortgage problem, and inflation is skyrocketing in a country that has to import almost everything.
Tourists aren't going to benefit from the low value of the krona. "We have a restrictive agricultural policy, which makes meat very expensive," said Asgeir Jonsson, chief economist of Iceland's Kaupthing Bank. "We have a 7% to 25% value-added tax for purchases."
Olof Yrr Atladottir, general director of the Icelandic Tourist Board, concedes that there's nothing cheap for international tourists. Except, she quickly adds, Iceland's spectacular landscape of volcanoes, geysers, glaciers and raging rivers. "Everything in nature is free."