Argentina's grain-tax vote deals blow to new president
The bill failed despite her party's leadership. But exports could rise.
BUENOS AIRES, Argentina - An Argentine Senate vote yesterday rejecting divisive export taxes may boost grain supply and put more food on the world's tables - if President Cristina Fernandez accepts the surprise veto by lawmakers from her own party.
Fernandez increased taxes by decree in March, and in June, in a largely symbolic gesture, submitted the package to Congress, where her coalition holds a majority. But Argentina's political system was stunned yesterday as Fernandez's vice president cast a decisive tie-breaking vote against what she has called an attempt to spread Argentina's farm wealth among its 10 million poor.
The taxes have not yet been repealed, but Fernandez had promised to respect the Senate's decision. In a speech last night, she avoided direct mention of the vote but accused some members of her Peronist party of "defecting" and reaffirmed the need for the redistribution of wealth.
Argentina, one of the world's top four exporters of soybeans, corn, wheat and beef, should have ridden global food prices to record prosperity. Instead, protests over the export-tax increase disrupted the flow of farm goods as grocery shelves emptied and farmers stockpiled soybeans and other commodities intended for Asian markets.
The tax increases - up more than 10 percent on soy, sunflower and other grains - were designed to make Argentine foods too expensive abroad, trapping them on local markets and driving prices down at home to combat rising inflation.
Should the taxes be repealed, exports will once again be competitive and stream out of Argentina and onto world markets, where supplies have been tight.
"In the short term, it's very positive," said Rafael de la Fuente, chief Latin American economist for BNP Paribas Bank. "Local production should take advantage of this."
If Fernandez tries to levy new taxes in the future, they are likely to be lower and not tied to international grain prices, as were the ones rejected by the Senate. That would ensure a steady flow of Argentine farm exports, said Martin Uribe, a Duke University specialist in emerging economies.
Prices for soybeans and corn dropped on world markets yesterday. But until Fernandez makes a final decision on her tax package, analysts said, the Senate's vote will have little long-term impact.
Protesting grain farmers have argued that higher export taxes make it difficult for them to stay competitive, while lower local prices leave them little to reinvest in production.
Since March, their protests spread from rural highways to big cities, as Argentine exports fell, trade stalled and inflation swelled. Repeated strikes and roadblocks damaged confidence in the government and scared off investors.
But Fernandez insisted that the taxes were needed to keep farm goods cheap at home. The World Bank estimates that food prices have risen 83 percent since 2005.
As her popularity plummeted, Fernandez sent the tax measure to Congress to garner public support. The risks seemed low, as her coalition holds a majority in both legislative houses.
The lower house backed the tax package, 129-122, on July 5. But yesterday's Senate vote was a shocker: Lawmakers tilted 37-36 against the proposal. Fernandez's vice president, Julio Cobos, cast the tie-breaking vote in a legislative session that saw major defections in her ruling coalition. Fernandez will likely now need to open a dialogue with a suddenly rebellious Congress.