Brazil & Southern Cone - April 2009 (ISSN 1741-4431)

On 20 March President Cristina Fernández announced that almost one-third of revenue obtained from the 35% export tax on soya would henceforth be allocated to the provinces. Farm leaders and the opposition accused her of bribing the country's powerful provincial governors in a bid to erode support for the farming sector ahead of mid-term congressional elections in June (see pages 1-2). The following day, farm unions announced the launch of the sector's second strike this year, erecting roadblocks and banning the sale of grains and meat for export for seven days.

Fernández declared a “decree of necessity and urgency" (DNU) - the third one she has signed since taking office - to assign the provinces 30% of the revenues generated by the soya tax. The new “federal solidarity fund" will be worth up to Arg$6.5bn (US$1.77bn), the equivalent of more than 11% of the total funds currently allotted to the provinces by the central government. At least 30% of the new monies must be allocated to “social infrastructure" projects, such as the construction of schools, housing, water supplies and sewage works.

Farm leaders, who want the soya tax to be scrapped altogether, described the move as “political chicanery". They accused Fernández of seeking to undermine their claim that the government does not redistribute agricultural export tax revenue to the provinces, and to buy the support of provincial representatives who have thus far sided with the rural sector. Farmers also speculated that most of the “solidarity fund" would go towards financing government election campaigns in the lead up to the June ballot.

On the same day as Fernández's announcement, opposition deputies failed to force a congressional debate on phasing out export duties on soya and grains. Opposition parties and farming unions had hoped to spark a rebellion among government deputies in support of the farming sector. In order to pass the bill the opposition needed to muster at least 129 votes (over 50% of deputies). In the event, only 109 deputies - all from the opposition - turned up to the session. It is worth noting, however, that should the government lose its majority in June's mid terms, the opposition would finally be in a position to repeal the tax.

Talks between the government and the farming sector, which has provided the main challenge to Fernández's administration in recent months, are likely to founder in advance of the elections, as the Kirchners seek to polarise the dispute. In a speech in the capital on 26 March, Fernández implied that protests by farmers were a threat to democracy. At a rally across town, Kirchner reminded voters that “Cristina was elected by the people and would defend the people" and reminded the farming sector, which the government frequently accuses of greed, that “those who are lucky enough to have [wealth], must show solidarity".

ARGENTINA: ECONOMIC OVERVIEW

The economy is slowing but still growing (just). In January, economic activity was up 2.3% on the same month of 2008. The month-on-month rate of growth was 0.3%, according to the Instituto Nacional de Estadí­stica y Censos (Indec). The consensus forecast from independent economists polled by the central bank is for GDP growth of 1.2% in 2009.

Early data for February shows that the slowdown is kicking in: although construction was up by 1.6% year-on-year in February, overall in the first two months it contracted 2.8%. Industrial output in February was down 1.1% overall, even though manufacturing output rose 2% month-on-month over January. Overall industrial output was down by 2.8% in the first two months of 2009.  In 2008, it rose 2.8% annually.

The government is expecting real GDP growth of 4% in 2009, down from 7% in 2008. What will pinch most is weak external demand. In the first two months of 2009, exports fell 30% to US$6.67bn. Imports were down even more (38%) at US$5.42bn. Indec said that export prices were down by an average of 14%, while volumes were down 12%. Manufactured exports, which had been holding up reasonably, had a poor February, dropping 18% year-on-year. Sales volumes collapsed (-21%) after manufacturers tried to push up prices by 3%.

The country's biggest trade partner is Mercosur (i.e. Brazil, Paraguay and Uruguay), which accounts for 23% of total exports and 35% of imports. Argentina managed to increase exports to Asia and the Middle East in the first two months.