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Argentine Farm Strike Hurt Economy, Minister Says
Bloomberg
July 01, 2008

By Eliana Raszewski

Argentina's Economy Minister Carlos Fernandez said the country's economy has suffered from a three- month conflict with farmers, who blocked routes and withheld grain shipments to protest a new export tax system.

``The farmers' strike and blockades have hurt, but since they were lifted all the variables are getting back to normal,'' Fernandez said today in an interview with Radio Diez from the northern province of Tucuman. ``We're monitoring tax revenue data and it continues to be good.''

The blockades created shortages of food and industrial supplies since March, when the government imposed a variable export tax on farm goods. The sliding tax scale raised taxes on soybeans and sunflower seeds from a fixed 35 percent to more than 40 percent. President Cristina Fernandez de Kirchner on June 17 asked Congress to ratify the tax.

Merrill Lynch & Co. said in a report today that the farm strike has degraded the political and economic climate in Argentina, leading analysts to cut their growth forecast for this year to 6.8 percent from a previous estimate of 7.5 percent on higher risks of stagflation, a period of inflation and slow growth. The estimate is below the average 8.5 percent growth that the country reported in each of the past five years.

Tax Collections

Argentina is the world's second-largest corn exporter and the third-largest soy exporter. Cereals and oilseeds provide the government with more than half of its export tax revenue. The government will report June tax collections tomorrow.

``Public sector expenditures growth of roughly 40 percent year over year partly explains the government's insistence in raising export taxes,'' Merrill Lynch said in today's report sent by e-mail.

The economy minister said the government is working to boost food and oil output to prevent Argentina from importing global inflation to the domestic market. The country reported annual inflation of 9.1 percent in May compared with 8.9 percent in April. Daniel Volberg, an economist at Morgan Stanley in New York, said annual inflation is almost 23 percent.

``Additional acceleration could cause a sharper retrenchment in consumption and increase the risks of a harder landing in the next 18 months,'' Merrill Lynch said.