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Elimination of export taxes puts Argentina on new course

Published:Tuesday | December 15, 2015 | 12:09 AM
President of Argentina, Mauricio Macri.

Fulfilling a campaign promise to overhaul Argentina's agricultural sector, President Mauricio Macri on Monday announced the elimination of export taxes on key products, a move that will also have a deep impact on how Latin America's third largest economy is funded.

Macri made the announcement while meeting with farmers in Pergamino, about 135 miles (220 kilometres) northeast of Buenos Aires. Starting today, Tuesday, export taxes will be eliminated on corn, wheat, meat and fish. Export taxes on soy beans will be lowered from 35 to 30 per cent.

"Without the agricultural sector, the country can't move forward," Macri said in comments that were broadcast live.

The South American nation is one of the world's breadbaskets. However, the sector struggled amid frequent fights with former President Cristina Fernandez over the last eight years. She kept export taxes high to stimulate local consumption and keep the prices of bread, corn, meat and dairy products low at home.

The taxes were also a key part of financing her government, which spent heavily on social welfare programmes for the poor.

Farmers argued that the taxes put a cloud over the industry and led to distortions in crop rotations and production. For example, because of low profits with corn, many farmers used more of their fields for soy beans, which brought in more money.

The high taxes also led to massive hoarding, something that Fernandez's administration struggled to crack down on. Some economists estimate that the current amount of hoarded crops represent about US$13 billion in exports.

Macri said farmers no longer would "have an excuse" to wait in hopes of better prices. He also promised to crack down on those who continued to hoard.

"We must stop being the world's barn to become the world's supermarket," said Macri, who ran on free-market principles and defeated Fernandez's chosen successor in elections in November.

Macri, who was inaugurated last week, is betting that opening up the sector will bring more badly needed revenue to state coffers than the high-tax model implemented by Fernandez, who argued the rural sector could and should pay a huge share of funding government.

But for much more money to come in, economists say the agricultural changes must be coupled with deeper, across-the-board reforms, such as eliminating restrictions on buying US dollars that has created a booming black market. Currently, Argentina's official rate is around nine pesos to the dollar. On the black market, a dollar has fetched as much as 16 the last year.

Problems in currency exchange markets have made operating difficult for farmers, who must deal heavily in dollars to both export crops and import heavy machinery. During the campaign, Macri promised to lift the restrictions, but has not yet done so in the first days of his administration.

"The word today is hope, not happiness," said Fernando Boracchia, vice president of a large rural association, who also raises sheep on 550 acres outside of Buenos Aires. "These changes won't mean anything if they don't come with a fix for the exchange rate problem."