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Cablegate: Argentine Congress Debates Ag Export Tax

VZCZCXYZ0023
RR RUEHWEB

DE RUEHBU #0910/01 1831935
ZNR UUUUU ZZH
R 011935Z JUL 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1465
INFO RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/HQ USSOUTHCOM MIAMI FL
RUCNMER/MERCOSUR COLLECTIVE

UNCLAS BUENOS AIRES 000910

USDA FOR FAS/OA/OCRA/ONA/OGA/OFSO

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: EAGR ECON EINV PGOV ELAB PHUM AR
SUBJECT: ARGENTINE CONGRESS DEBATES AG EXPORT TAX

REF: (A) Buenos Aires 0866 (B) Buenos Aires 0842 (C) Buenos Aires
0834 (D) Buenos Aires 0829 and previous

1. (SBU) Summary: The Kirchner government's majority in the
Argentine Congress appears to be fracturing over the GOA's request
for approval of the variable export tax regime for grains and
oilseeds. The GOA continues to insist that the Congress approve the
export tax regime currently in place without changes, although it is
now indicating a willingness to make additional modifications in its
program to reimburse part of the export tax to small and medium
producers. It appears unlikely that the GOA will gain approval of
the export tax without changes, and various proposals to modify the
export tax are circulating among congressional representatives of
the ruling coalition and the opposition. End Summary.

-------------
State of Play
-------------

2. (SBU) When President Cristina Fernandez de Kirchner (CFK)
announced June 17 that she was submitting to the Argentine Congress
legislation authorizing the export tax regime for grains and
oilseeds, she and her Victory Front (FPV) allies enjoyed a majority
in both houses. In the face of Nestor Kirchner's insistence that
the Congress ratify the export tax regime decreed by the GOA on
March 11, there are increasing indications of insufficient support
in Congress to approve the controversial measure without
modifications. In a concession to these pressures, the GOA has
indicated a willingness to revise the current compensation scheme
for medium and small producers, but continues to insist that the
basic export tax regime is untouchable.

3. (SBU) Pressure to modify the export tax system is coming from
both the opposition and from within the ruling coalition. The
government's bill is currently under consideration by the
Agriculture and Budget Committees in the Chamber of Deputies. An
alternative proposal is being circulated by Peronist Deputy Felipe
Sola, a member of the ruling coalition who may hold a grudge against
the Kirchners for their 2007 decision not to support his re-election
as governor of Buenos Aires. (Sola is also reportedly close to
former President Duhalde who is widely reported to be trying to
cobble together an anti Kirchner coalition for the 2009 legislative
elections.) Sola's proposal would maintain thevariable tax, but
modify it to reduce the current export tax from 47 percent to 40.7.
This proposal reportedly has the support of 60 deputies, close to
half the ruling coalition's representatives in Congress, and may win
the support of opposition members who are also considering competing
proposals to reduce the tax even more. The GOA has not presented
publicly economic arguments or fiscal imperatives for keeping intact
its sliding scale of duties.

------------------------------------
Suspicious of Penguins Bearing Gifts
------------------------------------

4. (SBU) Farm groups continue to insist on a reduction of the export
tax to the level prior to March 2008 (35 percent), but have
indicated a willingness to accept a variable component to the export
tax. The GOA is reportedly offering to increase compensation for
small and medium producers in order to gain the support from the
most vocal and numerous sector in the farm protest (and to split the
united front presented by the producers). Producers are very
suspicious of the government's offer, however, due to difficulties
in collecting similar payments in the past. Local newspaper Clarin
reports that only five producers have managed to qualify for the
existing export tax reimbursement program for small producers
announced in April and producers have experienced similar problems
with other subsidy programs implemented by the GOA in the past. One
local contact, a large poultry producer, reported to the
Agricultural Counselor last week that the government is overdue on
paying him over US$10 million in subsidies for poultry production,
and the conditions of the program force him to sell domestically at
a loss. Small and medium producers face even larger barriers in
receiving government payments.

5. (SBU) Farm groups, recognizing that the legislative process may
drag, are requesting the GOA suspend the increased export duties for
180 days or at least until the Congress has voted on the measure.
At present, there appears to be little prospect that the GOA will
accede to this demand.

---------------------------
Pressure on Input Suppliers
---------------------------

6. (SBU) The GOA has also stepped up pressure on agricultural input
suppliers to hold down prices, responding to complaints by producers
about rising costs. The associations representing agricultural
input suppliers received a call from Secretary of Internal Commerce
Moreno on June 26 informing them that input suppliers are not
allowed to increase input prices without authorization from the
Secretariat of Internal Commerce.

-------
Comment
-------

7. (SBU) Argentine legislators are known to be more responsive to
their political bosses than to their constituents. In this case,
however, deputies and senators belonging to the Kirchners' FPV
coalition, particularly those from Argentina's grain belt, appear to
be feeling heat back home, and some may buck the government's demand
for party discipline. They are undoubtedly concerned about the
consequences that their votes might have in the 2009 legislative
elections. If the government continues to hang tough and loses, the
resulting intra-coalition insurrection will severely weaken the
Kirchner government's authority. There is still space for the
government to show a little more flexibility and find a solution
where all sides can claim victory. It is not clear yet how this
will turn out.

WAYNE

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