July 18, 2008 in Nation/World

Argentine Senate rejects taxes on food exports

Decision may ease world food prices
By NICHOLAS KUSNETZ Associated Press
 
Associated Press photo

Government supporters pray as they watch a large screen outside the Parliament in Buenos Aires on Thursday.
(Full-size photo)

BUENOS AIRES, Argentina – An Argentine Senate vote rejecting divisive export taxes Thursday 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 submitted the package to Congress, where her coalition holds a majority, in a largely symbolic gesture. But Argentina’s political system was stunned Thursday as Fernandez’s own 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The taxes have not yet been repealed, but Fernandez had promised to respect the Senate’s decision.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 Thursday 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 recent global food prices to record prosperity. Instead, protests over the export tax increase disrupted the flow of farm goods as farmers went on strike, stockpiling commodities as grocery shelves emptied.

The tax hikes – 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Should the taxes be repealed, exports will once again be competitive and stream out of Argentina and onto world markets, where supplies have been tight.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 will likely 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 on Thursday. But until Fernandez makes a final decision on her tax package, analysts say the Senate’s vote will have little long-term impact.

Protesting grain farmers have argued that higher export taxes make it hard for them to stay competitive, while lower local prices leave them little to reinvest in production and meet rising demand. 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, pushing bond prices down.

But Fernandez insisted 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 to 20 percent in a June poll of 1,000 Argentines by the Buenos Aires consultancy Poliarquia, Fernandez sent the tax measure to Congress to garner public support.

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