Observatorio Argentino 4

What, no comment on Miami drivers?  Well, let's talk about Argentine politics instead.

On Tuesday, the government will be organizing counter-demonstrations against demonstrations put on by farmers angry over the Senate’s looming approval of a hike in the country's soybean export tax.  The lead man organizing the counter-demonstrations? The fellow in the black shirt in the below video:

That takes the phrase, "politics is a full-contact sport," to a whole ‘nother level.  The man in the black shirt is named Luis D’Elia. The fellow he hit is named Alejandro Gahan, a member of the Gualeguachú Citizens’ Assembly, an organization that spent most of 2007 blockading Argentine highways and ports in order to pressure Uruguay to halt the construction of a paper mill. (In a common thread for this blog, the company that wants to build the mill is from Finland. Coincidence?) 

The Citizens’ Assembly is also aggravated by the soybean export tax hike, and for good reason. In brief, the hike would transform the current 35% tax into a progressive one that would rise with world prices. The soybean tax, I should add, is only one of many agricultural export taxes that Argentina levies. In fact, the Argentine federal government derives 11% of its total tax revenues from them.

On the one hand, export taxes are new in Argentina: President Duhalde imposed them in 2002, in the midst of the economic meltdown discussed here.  Agricultural export taxes are also rare around the world. So rare, in fact, that when Aldo and I first presented our case to our senior colleagues, Lou Wells was completely incredulous, and he quite rightly asked us to make sure that we weren’t misinterpreting the imposition of an import duty of some sort. 

On the other hand, however, Argentina has a long tradition of taxing the hell out of its agricultural sector. Back in the nineteenth century, export taxes generated most of the federal government's revenue. In 1883, the government exempted beef from export taxes, but kept them on other products. In 1906, Argentina abolished export taxes, only to reimpose them in 1916. 

UPDATE:  An Argentine source points out, correctly, that export taxes were very common in the 19th century.  This is true for Latin America. Mexico, for example, greatly reduced its reliance on export taxes in the decades before the Revolution (which started in 1910), but then doubled them between 1940 and 1960. It is also true for Thailand, which taxed rice exports until 1986. 

It is not true, however, for three countries that looked rather like Argentina in the 19th Century: Australia, Canada, and New Zealand. In Australia, only Victoria and New South Wales briefly imposed export taxes, but only on gold.  New Zealand never (AFAICT) imposed export taxes. And Canada, well, New Brunswick taxed lumber exports until 1873, but the other provinces did not.  In fact, federal railway policy in the Prarie provinces subsidized exports rather than taxing them.

When Perón came along, he took export taxes to new heights. He created the Instituto Argentino de Promoción del Intercambio. IAPI gained a government monopsony over agricultural exports (and most imports), with results you can guess.  Buy low --- there's no one else for your typical farmer to sell to --- and sell high. 

IAPI went away, but high export taxes remained. When you add in two additional factors --- import taxes usually impose their largest burden on exporters, and Argentine import taxes were high --- it wouldn’t be unfair to say that Argentine economic policies essentially resembled taking the economy of New Zealand and using it to subsidize Brooklyn. The result was not always unpleasant, but it didn't generate a whole lot of growth.   

The Menem Administration started cutting export taxes in 1989. Menem abolished the 30% export tax on wheat in 1991 and on corn in 1993, and took soybean export taxes down from 41% to 3.5%. By 2001, export taxes were effectively negative when export incentives were included. 

So why did Duhalde and Kirchner bring them back, and why does Fernández want to hike them further? Very simple:  Argentina's financial stability depends on them. Duhalde hiked export taxes as an emergency measure in 2002:  a rise in export taxes to 1.2% of GDP (from nada) partially compensated for a collapse in other tax revenues worth 2.0% of GDP.  Kirchner then institutionalized them, and raised them further. After all, his entire economic strategy was based on repudiating the debt while running fiscal surpluses high enough that he could have restarted payments. Gain the financial markets' confidence in Argentine responsibility while simultaneously denying foreign creditors the right to enjoy the fruits of that newfound responsibility. Not a lot to dislike. 

But but but. Argentine spending has been on the rise again. Consolidated data doesn't seem to be available for 2006 or 2007, so I'm not sure what's been driving the rise --- could be provincial spending, could be other things. The catch is that the consolidated budget surplus is shrinking fast, down from a peak of 2.7% of GDP in 2005 to 1.2% last year. 

All of which puts President Fernández in a bit of a bind. She needs the additional revenue to keep the country out of a debt spiral ... or at least she thinks she does. Yet she doesn't have the political capital to cut spending (again --- cuts were pretty brutal in the early 2000s) or raise domestic taxes. 

So she’s decided to take on the farmers. Which is brutal. They're only 3.4% of the population, but far more people depend on them for their livelihoods.  As a result, she's needed to call in the heavy guns:  which means people like Luis D’Elia. D’Elia is a street leader. He gets $300 a month as a teacher for a literacy program, but his real job is to mobilize the piqueteros.  A piquetero is, well, a demonstrator ... literally, a picketeer, somebody who holds a picket.  (Although the word can also mean "squad member" in another context.) D’Elia started out in the teachers' union in the 1980s, when he became active in the "Peace and Justice Service" a Christian NGO organized by Adolfo Pérez Esquivel. (Pérez had been tortured by the military government in 1977, but continued protesting against the generals, winning the Nobel Peace Prize in 1980.) In the 1980s, D’Elia started working with squatters in Buenos Aires, building a powerful organization. By the 1990s, he was heavily involved in Argentina's confusing blur of party politics, switching his organization between backers. Despite an extortion accusation in 2001 (he was accused of taking kickbacks from the beneficiaries of a workfare scheme), Kirchner appointed him Subsecretary of Public Housing Land Procurement ... e.g., Subsecretary of Piquetero Mobilization. Which he did very well, trashing police stations and breaking up counterdemonstrations. 

Ironically, Adolfo Pérez Esquivel denounced D’Elia after D’Elia's goons waded into a march protesting (of all things) the government's inability to control violent crime, calling him a “calculating upstart” who was “trying to use events for his own gain and the government’s.” 

Anyway, the piqueteros are tough.  D’Elia likes to say things like, “The only thing that gets me going is my hate for the fucking oligarchy. I’ve got no problem killing them all.”  He followed that with, “I've got a visceral hate for the white people in Barrio Norte.  You all think that we're dishonest and barbaric dregs. I’ve got the same hate you do. Hate for you is all that gets me going.”

And so these are the guys who are going to take on the farmers, should they choose to continue protesting the tax hike via strikes and blockades. Problem is, both sides are right:  Argentina needs taxes, but it's already squeezing agriculture till the pips squeak. The most dynamic 8.4% of the economy pays special taxes that comes to 30% of its value-added, on top of the regular taxes paid across the economy. Yet it ain’t easy to raise other taxes in a country like Argentina. 

Here's the evolution of Argentine taxes from 1996 to last year.  What would you do?

I don’t want to exaggerate things.  After all, I’m pretty sanguine about a country in the midst of a massive bloodbath between criminal gangs and the government. But both policy and politics are looking increasingly bad in Argentina, which is very disappointing.  This isn't to say that the dilemmas facing President Fernández are easy. They aren’t. They’re very difficult.

But it's increasingly looking she's not even going to try. And if that’s right, it’s just a damned shame. 

Thoughts? Suggestions? Comforting nostrums?

Comments

[Randy McDonald]

"Which is brutal. They're only 3.4% of the population, but far more people depend on them for their livelihoods."

Do questions of national identity, i.e. Argentina as a nation of farmers and ranchers, enter into the affair at all? It seems like a tack that opponents of Kirchner could take.

As for the piqueteros, wow. I'm more familiar with Naomi Klein's depiction of them.

[Noel Maurer]

The urban-rural split in Argentina runs deep, but I won't discuss why until an Argentine chimes in.

You know who you are!

[Noel Maurer]

I think that a lot of people who read only Naomi Klein --- not yourself, but some readers of your blog --- would do well to take a look at the news from Argentina. I'll try to keep up some English commentary here.

Argentina really is my favorite country. Buenos Aires needs to be experienced to be understood.

[Leticia]

So, the Argentine chimes in. So much to say, so little time (and space). As much as I like my country's originality on tackling economic issues, high tariffs in the 19th century were very common in Latin America. It was the main source of revenue for the nascent countries. (Check Clemens and Williamson on this topic, also known as the tariff-growth paradox.)

In terms of class divisions, the roots are
indeed historical. The agricultural sector has always been the engine of the Argentine economy. Its dynamism was in line with the external markets and the domestic policies. The latter significantly reduced the profitability of the sector at times (see the IAPI example on the main post).

Right now, the question is how much "surplus" the government can extract from this sector. It has reached confiscatory levels (in March export taxes were 35% and now -taking into account the moving average withholding- is around 49.5%). The political game (as I read it with info coming from my Argentine friends) can be framed the following way: tax the agricultural sector as much as possible and then grant subsidies to friends and allies.

The latest news are that the Senate turned down the moving withholding tax project (la 125) last night at 4:30am by one vote. I have no idea what is going to happen as the government was ready to celebrate and the farmers were planning to appeal to the Supreme Court.