Argentina runoff election could bring big changes in economy
Big stake for sectors from agriculture to banking
CAPILLA DEL SENOR, Argentina:
Marcelo Cervigni watches a huge tractor planting soybeans on his farm while flipping through smartphone photos of neighboring canola fields pummeled by a hail storm the night before. The damage will cost him about $80,000, a painful blow from nature but one he says is minor compared to the taxes and export restrictions put on farmers by outgoing President Cristina Fernandez. He hopes they will be lifted by the new president being elected today.
“It’s not good to be in a business where profits are getting closer to zero,” said Cervigni, a fourthgeneration farmer outside Capilla del Senor, a town about 50 miles (80 kilometers) northwest of Buenos Aires. For sectors ranging from agricultural to banking, there is a lot at stake for Latin America’s third-largest economy in today’s runoff election.
Fernandez and her late husband Nestor Kirchner, who was president before her, unabashedly increased the role of the state. They spent heavily on programs for the poor while sharply increasing taxes and adding regulations aimed at keeping prices low at home for things like bread and bus rides.
Today, the largely protectionist economy is suffering many ills: inflation around 30 percent, an enormous informal sector that doesn’t allow the government to collect badly needed tax revenues and a stagnating gross domestic product that has brought job creation to a halt.
“We are talking about an economy that has not grown over the last four years. Clearly it’s spent,” said Federico Thomsen, a Buenos Aires-based economist. Some businesses, such as those in the agricultural sector, are hoping for a big overhaul from the next president. But other industries, particularly textiles, are nervous about potential changes, fearing they could lose tariffs and other limits on imports that help insulate them from foreign competition.
Every sector would be affected by reform of the currency markets, which would likely go hand-inhand with a sharp devaluation of the Argentine peso. Restrictions on buying US dollars have created a booming black market in which many businesses are forced to buy dollars at a much costlier rate.
Opening up the economy could also pave the way for millions more dollars of foreign investment in “Vaca Muerta,” or “Dead Cow,” the moniker given to the big shale oil reserve in southern Argentina that has been largely untapped. In attempts to attract independent voters, the two candidates in Sunday’s runoff election have tailored their messages to the center. But in essence they represent starkly different economic visions.
Daniel Scioli, the governor of sprawling Buenos Aires province who is backed by the president, presents himself as the continuation of the majority of the current administration’s policies, with small tweaks where needed. Mauricio Macri, the opposition mayor of Buenos Aires, wants to liberalize the economy, from lifting the currency restrictions to scrapping many export and import taxes.
Not surprisingly, the litmus test for industries to decide who to support comes down to how they have fared under Fernandez, who is barred by the constitution from seeking a third consecutive term.
Clothes and shoe manufacturers, toy producers and thousands of small businesses have benefited from import restrictions that limit cheap Asian imports. Many of their leaders fear Macri would return to the neoliberal policies of the 1990s, a period that many Argentines say set the stage for country’s 2001-2002 financial meltdown.
The view is different on farms across Argentina, a nation with millions of acres of fertile land good for everything from raising cattle to producing huge quantities of soybeans. Fernandez’s administration restricted exports of grains like corn and wheat, along with eggs and milk, in attempts to keep prices low for domestic staples. Farmers argue it had the opposite effect: Many dedicated fewer acres to those crops and instead focused on soybeans. Prices for soybean oil soared between 2008 and 2013, but have come down sharply the last few years. The Kirchners saw a cash cow in soybeans: They added a 35 percent tax, based on world prices, to exports. Infuriated farmers in recent years have periodically gone on strike while stockpiling millions of tons of crops in hopes of selling later at higher prices and lower taxes. Both Scioli and Macri have promised to scrap export taxes and quotas on corn and wheat and gradually reduce soybean taxes. Their similar proposals may be based on the reality that the incoming government will badly need revenues. The Scioli camp estimates that nearly $13 billion of stockpiled crops are waiting to be sold.
“The last 12 years have been terrible,” said Carlos Altieri, who owns a 250-acre farm dedicated to wheat, soybeans and milk outside Cepilla del Senor. “No matter who wins, we’ll be better off than we are now.” — AP