Argentina ends grain tax hike

After months of standoff with irate farmers, and a humiliating defeat in the Senate, the government rolls back the extra levy on farm exports.
By Patrick J. McDonnell, Los Angeles Times Staff Writer
July 19, 2008
BUENOS AIRES -- The government rescinded Friday a controversial tax increase on grain exports that had sparked months of protests and bared deep divisions in one of the world's major food-producing nations.

President Cristina Fernandez de Kirchner pulled back the tax without comment a day after a stunning rejection by the Senate made possible by a crucial "no" vote by her own vice president. The Fernandez administration had asked a usually compliant Congress to make the tax, which had been imposed by decree, permanent by writing it into law.

 
"This should mean the end of the conflict," said a satisfied Luciano Miguens, president of the powerful Argentine Rural Society, a trade group.

The Senate defeat was such a blow that government spokesmen Friday were scrambling to deny rumors that Fernandez was poised to resign less than a year after she was elected to a four-year term in October.

The tax rollback apparently ends a national crisis that had dominated Argentine political debate since March 11, when the government put the new levies into effect. Under that plan, the 35% tax on soy exports could have risen to 50% or more, depending on market values.

Argentina has enjoyed more than five years of political stability and brisk economic growth. But farmers enraged by the tariff hike soon began blockading roads and holding back their produce, causing scattered food shortages and threatening an already stretched global food supply chain.

While much of the world frets about food scarcity, Argentina, a global breadbasket, found itself embroiled in a divisive dispute about food abundance -- and what to do with booming profits from sales of grains, especially soybeans bound for Asia and Europe. Escalating demand for food has brought new prosperity to agricultural nations such as Argentina and neighboring Brazil, both among the world leaders in grain and beef exports.

The Argentine government said the additional $1.2 billion or so to be raised annually from higher levies was needed for social investment and other necessities. The president also sought to lower domestic food prices by encouraging farmers to plant staples like wheat and corn, rather than export crops such as soybeans.

Taxing agricultural exports has long been a linchpin of the economic strategy of Fernandez and her husband, Nestor Kirchner, her predecessor as president.

But growers argued that export duties were already too high. In retrospect, observers say, the government probably underestimated the farmers' resolve and the extent of sympathy they would arouse.

Farming groups staged four separate strikes, throttling commerce. The center-left government called the farmers greedy profiteers and attempted to rally its working-class base against the wealthy agricultural sector.

However, the government's strategy appeared to falter when many middle-class, urban Argentines sided with the farmers. Fernandez's ratings slid into the 20% range.

Still, the government seemed poised to have its way until the predawn hours Thursday when Vice President Julio Cobos cast the deciding vote after a marathon debate in a deadlocked Senate.

The final outcome, while clearly a defeat for the president, also serves to give everyone in the bitter dispute a fresh start. The apparent denouement on Friday was notably low-key, considering the harsh rhetoric that has been slung back and forth for months.

Long-stalled talks between the government and farm interests were expected to restart. Fernandez was slated to meet with legislators in an effort to craft a less incendiary tax plan.

"At least now the government of Cristina can reinvent itself and get out of the labyrinth," said Sergio Berensztein, a political analyst.

Critics said problems like inflation, a looming energy crisis and poor infrastructure were ignored amid the farm debate. "This decision opens the door for a long-postponed agenda," said Elisa Carrio, an opposition leader and frequent critic of the president and her husband. "It's a good thing that the reaction of the president of the nation will allow this conflict to be resolved."

patrick.mcdonnell @latimes.com

Andrés D'Alessandro of The Times' Buenos Aires Bureau contributed to this report.





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