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