VZCZCXYZ0000
OO RUEHWEB

DE RUEHBU #0797/01 1631430
ZNR UUUUU ZZH
O 111430Z JUN 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1303
INFO RUCNMER/MERCOSUR COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS BUENOS AIRES 000797 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN EAGR PHUM EAID AR
SUBJECT: ARGENTINA ANNOUNCES SOCIAL INVESTMENTS FROM 
PROCEEDS OF AGRICULTURAL EXPORT TAX INCREASE 
 
REF: BUENOS AIRES 0766 AND PREVIOUS 
 
¶1. (SBU) Summary: The GOA announced June 9 that it will 
direct the marginal proceeds from its March 11 increase in 
soy export taxes to health (60%), housing (20%) and rural 
roads (20%).  Argentine President Cristina Fernandez de 
Kirchner (CFK) followed the announcement with a 25-minute 
speech arguing that the effective increase in duties on soy 
exports, which triggered the ongoing crisis with the 
agricultural sector, was intended to protect Argentina's food 
security and to redistribute income.  Agricultural leaders 
were unmoved, noting their grievances remain unaddressed as 
the president made no concession toward them.  The public was 
also unimpressed, if initial polls are correct.  The social 
investments are clearly intended to woo public support away 
from the agricultural sector, but financial analysts are 
worried about the fiscal impact of the announced spending. 
Also on June 9, a lower-level federal judge found the export 
taxes unconstitutional, and on June 10 the Supreme Court 
agreed to take up a provincial complaint on the export taxes. 
 End summary. 
 
More Government Spending for the Poor 
------------------------------------- 
 
¶2. (SBU) With considerable fanfare, CFK assembled much of her 
cabinet and allied governors, along with business and labor 
leaders, at Casa Rosada late on June 9.  The GOA announced 
that it will direct proceeds from its March 11 increase in 
agricultural export taxes to health (60%), housing (20%) and 
rural roads (20%).  CFK followed the announcement with a 
25-minute speech calling on Argentines to help her combat 
poverty by showing solidarity with the poor and 
redistributing income.  She argued that the March 11 tax 
increase, which triggered the ongoing crisis with the 
agricultural sector, was intended to protect Argentina's food 
security and to redistribute income.  She implicitly faulted 
Argentine farmers for diverting a growing share of farmland 
to soy production, noting that Argentines do not eat soy but, 
due to the economic recovery of the last five years, are 
requiring greater amounts of beef, meat and wheat. 
 
¶3. (SBU) Despite the recovery of the Kirchner years, CFK 
noted there were still too many Argentines without work, 
food, housing, health and education.  She said it was 
"impossible to address poverty without redistributing 
income," and that she therefore felt obliged to "touch" upon 
the "extraordinary windfall" of a few in order to help the 
many.  CFK denied accusations that the export tax increase 
was the result of the GOA's insatiable appetite ("fiscal 
voracity") or its desire to avoid sharing revenues 
("co-participation") with provincial governments.  She 
claimed that over 90% of the GOA's capital spending was 
executed by local governments, and so would the newly 
announced social investments.  CFK concluded with an abstract 
apology to anyone who might feel offended by anything she 
said, presumably during the conflict with the rural sector. 
 
Reaction from Farmers and the Opposition 
---------------------------------------- 
 
¶4. (SBU) "Nothing much has changed: the fight continues," as 
leading editorialist Joaquin Morales Sola noted in a page one 
June 10 headline in "La Nacion."  Agricultural sector leaders 
continued to allege the tax increases were confiscatory and 
arbitrary.  They were unmoved by CFK's speech, noting their 
grievances remain unaddressed as the president made no 
concession toward them.  The GOA had boycotted earlier that 
same day a summons from Public Ombudsman Eduardo Mondino to 
meet with farmers at the negotiating table.  Road blocks 
manned by farmers or truckers continued around the country, 
and the press continued to report scattered shortages of some 
food items in supermarkets.  Farming sector leaders said they 
hoped negotiations would resume, and press reports indicated 
Planning Minister Julio De Vido might replace Cabinet Chief 
Alberto Fernandez as the GOA's lead negotiator. 
 
¶5. (SBU) Opposition leaders such as the Civic Coalition's 
(CC) Elisa Carrio and the Radical Party's (UCR) Gerardo 
Morales criticized CFK for resorting to populist demagoguery 
and usurping the banner of combating poverty.  Carrio said, 
"You don't fight poverty by combating production but by 
lowering inflation."  Morales also said "the best way to 
combat poverty is to rein in the inflation" which 
disproportionately hurts the working class and poor.  An 
"Ibarometro" poll poll published June 11 in "Clarin" found 
that 48% of the public did not believe the announced social 
investment projects would be carried out, and 60% of the 
public did not consider CFK's apology "sincere." 
 
 
The Courts Start to Weigh In 
---------------------------- 
 
¶6. (SBU) Also on June 9, lower-level federal judge Liliana 
Heiland ruled in favor of a farmer seeking judicial relief 
from the export taxes.  According to Heiland, the tax 
increase was unconstitutional since it had not been approved 
by Congress.  Heiland's ruling follows several similar 
decisions by other judges, but none of these decisions sets a 
legally binding precedent.  Observers note the GOA may appeal 
the decisions or simply ignore them.  On June 10, the Supreme 
Court agreed to take up a complaint filed by the province of 
San Luis alleging that export duties since 2001 had adversely 
affected provincial governments by reducing federal income 
tax revenues which, by law, must be shared with the 
provinces.  A Supreme Court justice told the Ambassador June 
11 that the Court was required by the Constitution to take 
the case as it was filed by a province against the federal 
government.  She indicated the Court will likely not have a 
hearing for 60 days.  (Note:  The province of San Luis is 
governed by Alberto Rodriguez-Saa, a dissident Peronist and 
rival of the Kirchners.) 
 
Impact in the Provinces 
----------------------- 
 
¶7. (SBU) The governor of a major province told the Ambassador 
June 5 that the prolonged agricultural crisis was 
devastating, with dire repercussions for everyone.  He said 
buyers and investors had fled, and businesses were holding 
off on major decisions, cautiously holding back until the 
situation clarified.  He noted the impasse between the GOA 
and farmers was damaging Argentina's reputation.  "We need a 
solution and soon," he concluded.  Media reports are 
increasingly focused on the growing discomfort or 
self-distancing of key governors allied with the Kirchners, 
particularly in heavily agricultural provinces, such as 
Cordoba governor Juan Schiaretti, who is openly critical of 
the CFK administration, and Entre Rios governor Sergio 
Uribarri.  Press reports also indicate that the highly 
popular governor of Buenos Aires province, former vice 
president Daniel Scioli, has taken a beating in the polls 
because of his perceived reluctance to meet with farmers or 
take up their cause. 
 
Comment: 
-------- 
 
¶8. (SBU) The announced social investments are clearly 
intended to woo public support away from the agricultural 
sector and also enlist the support of governors by earmarking 
the new revenues for provincial governments to spend on 
hospitals, housing and roads.  Influential "Clarin" 
editorialist Eduardo van der Kooy wrote June 11 that CFK 
bought herself some time with her June 9 announcement but did 
not end the farm revolt nor change the public perception of 
Kirchner intransigence and unwillingness to dialogue or 
negotiate.  In a June 11 editorial, the "Buenos Aires Herald" 
noted the GOA's social plan "looked more like improvisation 
than a detailed blueprint against poverty," but CFK had 
stolen the moral high ground by earmarking grain export 
duties to the fight against poverty.  The editorial also 
termed the GOA's strategy of holding down food prices by 
impeding exports as "self-defeating because food will never 
be cheap if farm production is discouraged."  Pundits also 
observed that, despite the GOA's claim that the new social 
spending would be executed by provincial governments, the 
Kirchners and Planning Minister Julio De Vido would 
ultimately use the apportionment of funds to keep political 
control of governors. 
 
¶9. (SBU) In the absence of hard data in the GOA's proposal, 
financial analysts are worried about the fiscal impact of the 
announced spending, particularly if soy prices should 
decline.  By some estimates, at current soy prices the GOA 
stands to collect an additional $1.45 billion annually from 
the sliding scale of taxes on soy exports alone.  New 
government spending on this scale could add marginally to 
inflationary pressures and could also complicate the GOA's 
ability to meet higher debt service requirements in 2009-11. 
Other analysts worry that the government will next turn to 
other sectors, like the banks, to tax "excess" profits. 
Clearly, this drama is not over. 
WAYNE