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Fernandez's Farm Tax Faces Senate Vote That's Too Close to Call
Bloomberg
July 16, 2008

By Bill Faries and Eliana Raszewski

A four-month fight over Argentine President Cristina Fernandez de Kirchner's increase in farm export taxes comes to a head today in the Senate with the outcome too close to call.

While Fernandez's coalition in the upper house includes 48 of 72 senators, she may have lost allies after her tax increase drained public support for her government and farmers blocked roads and halted export sales of wheat and soybeans.

Opposition Senator Maria Eugenia Estenssoro said yesterday that the Senate was closely divided. It was unclear if there were enough defectors from the ruling coalition to defeat the measure.

Farm leaders and their opposition allies vowed at a rally yesterday to continue fighting against the levies if the Senate endorsed the taxes. Senate approval is the final step in ratifying the taxes, which Fernandez imposed in March, after the lower house of Congress backed the bill 128-122 on July 5 following 17 hours of debate.

``The government is wrong,'' opposition Senator Arturo Vera said in a telephone interview. ``If something is wrong, even if Congress makes it a law, it's still wrong.''

The dispute has sparked the biggest anti-government protests since 2001, when the government froze bank accounts and defaulted on $95 billion of bonds. Fernandez imposed the increase by instituting a variable export tax on grains and oilseeds that is tied to Chicago exchange prices. The new system boosted taxes on soybeans to more than 40 percent from a previous fixed rate of 35 percent. The bill under debate today would mitigate the increase by reimbursing a portion of the tax to small producers.

Hospitals, Roads

Fernandez says $1.5 billion in revenue from the new taxes will help the country build hospitals and roads. Her husband and predecessor as president, Nestor Kirchner, said the taxes help fight food inflation by keeping more crops at home. Fernandez defended the tax for three months before deciding in June to ask Congress to ratify her decision to impose it.

Senate debate on the bill begins at 9 a.m. New York time with the vote planned before the end of the day, Vera said.

Farmers are looking past the vote and planning legal challenges against the bill if it is approved. They say the taxes are unconstitutional and ``confiscatory.''

``After the Senate, it'll be important to see what happens in the courts, to gauge if this bill has any legitimacy and then decide how we continue our offensive for a profound change in the country's agricultural policies,'' Agrarian Federation President Eduardo Buzzi told reporters yesterday.

Food Inflation

Hundreds of thousands of people waving blue and white Argentine flags filled streets in Buenos Aires yesterday at separate rallies held simultaneously by the ruling party and pro-farmer groups. Kirchner, joined by former vice president Daniel Scioli, led government supporters at a demonstration in a plaza facing the congressional building.

``The taxes help the government keep prices down,'' Kirchner said at the rally.

The farm crisis has taken a toll on consumer confidence and economic growth forecasts in Argentina, South America's second- largest economy.

Merrill Lynch & Co. cut its economic growth forecast for this year on June 30 to 6.8 percent from 7.5 percent as the crisis dragged on. Barclays Capital economist Eduardo Levy- Yeyati said growth will slow to 2.5 percent next year, the slowest since the economic crisis at the start of the decade.