VZCZCXYZ0003
RR RUEHWEB

DE RUEHBU #0943/01 1901759
ZNR UUUUU ZZH
R 081759Z JUL 08
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC 1494
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 000943 
 
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 AG EXPORT TAX APPROVED BY LOWER HOUSE OF CONGRESS 
 
REF: (A) Buenos Aires 910 (B) Buenos Aires 0866 (C) Buenos Aires 
0842 and previous 
 
¶1. (SBU) Summary: By a vote of 129 to 122, the Fernandez de Kirchner 
government on July 5 won a closely fought battle in the Chamber of 
Deputies (Lower House) of the Congress to approve the controversial 
variable export tax regime for grains and oilseeds.  The legislative 
battle now shifts to the Senate where a vote is slated for July 16. 
With the deputies' vote, the GOA achieved its main goal of leaving 
its variable export tax regime untouched, although it was forced to 
significantly expand the temporary compensation regime for medium 
and small producers in order to get the necessary votes.  The 
revised compensation program is expected to cost approximately $1 
billion, over a third of the additional revenue the GOA expects to 
collect from the variable export tax regime.  The GOA is expected to 
have the votes necessary to gain approval in the Senate, though 
maneuvering continues and some additional sweeteners could be 
offered.  Farm groups continue to be opposed to the measure and are 
now focused on lobbying members of the Senate for additional 
changes. End Summary 
 
¶2.  (SBU) The Chamber of Deputies (Lower House) of the Congress 
approved the controversial variable export tax regime for grains and 
oilseeds on July 5 by a vote of 129 to 122.  The vote came after a 
final 19 hour session, during which the government was forced to 
make additional changes in the compensation program for medium and 
small producers in order to gain the necessary votes.  Fourteen 
deputies from the ruling party voted against the proposal, which was 
approved with support from a diverse group of smaller parties.  The 
government used a mix of pressure and sweeteners to assure its 
majority.  The GOA achieved its main goal of leaving untouched the 
variable export tax implemented on March 11, which precipitated the 
farm dispute, marking a major but possibly pyrrhic victory for the 
government.  The deputies also ratified the GOA's authority to make 
changes in the export tax in the future without congressional 
approval, while leaving the compensation program as a temporary 
measure, valid through October 31, 2008. 
 
¶3.  (SBU) Modifications to the compensation program were not 
sufficient to gain support of farm leaders, who continued to push 
for a lower export tax.  The compensation program will provide small 
soybean producers of up to 300 tons a reimbursement of any export 
tax paid over 30 percent, while medium sized producers of up to 
1,500 tons will be reimbursed any tax paid over 35 percent for the 
first 750 tons sold.  Producers of more than 1,500 tons will pay the 
full tax, which is currently around 50 percent.  The legislation 
also includes transportation subsidies for producers in the smaller 
provinces, which are further from the main ports.  While exact 
figures on the cost of the compensation program are not available, 
the total cost is expected to be around $1 billion.  This is 
substantially above the original estimated cost of the compensation 
program of between $600 and $700 million, assuming the government 
actually makes the agreed payments, and totals over a third of the 
additional funds the GOA expects to collect from the higher export 
tax.  Farm leaders rejected the program as insufficient, although 
they have called for producers to refrain from resuming the road 
blockades that had previously caused widespread disruptions.  Many 
are very skeptical the government will actually make promised 
payments. 
 
¶4.  (SBU) The proposed legislation now moves to the Senate, where 
debate will begin on July 8, and a final vote is scheduled to take 
place on July 16.  Farm groups have announced that they will lobby 
hard for additional changes, although most local observers expect 
the government to have less trouble gaining approval in the Senate. 
It is possible, however, that the government will offer various 
Senators a few more sweeteners, either targeted to their needs or 
aimed at the farm sector, to assure a bigger majority. 
 
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Comment 
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¶7. (SBU) The Kirchner administration gained a major but possibly 
pyrrhic victory with the approval of the variable export tax regime 
in the Chamber of Deputies.  The government was able to gain 
ratification of the export tax regime it introduced in March but at 
tremendous cost.  They have alienated the financially important (and 
now more politically important) farm sector.  They brought to a boil 
the general discontent in large segments of the middle and 
upper-middle classes with the Kirchners' style of governance.  They 
have created a serious split in the Peronist Party (PJ) and Victory 
Front (FPV) coalition.  The President's and Nestor Kirchner's poll 
numbers have fallen significantly.  Some clearly see them as damaged 
goods within the party.  This makes them more susceptible to open 
challenges from within the coalition and complicates their prospects 
for keeping their hold on the Congress in the 2009 mid-term 
legislative elections.  The President's Social Pact, with which she 
was going to relaunch her presidency, remains dead in the water. 
The effect on the economy remains to be seen, but consumers and 
investors seem to be more cautious and some are moving their money 
out of the banking system and perhaps the country.  And, in the end, 
the issue at the heart of the farmers' complaint is not resolved. 
The export tax is now being debated in the Senate where the GOA has 
the numbers to pass the legislation.  It could, however, ultimately 
be overturned by the Supreme Court and in any case the GOA will have 
to address this issue once again when the compensation program 
expires on October 31.  While farm protestors are not currently 
blocking highways, that could change rapidly.  It will take some 
time to figure out the ultimate costs (economic and political) of 
this "victory." Clearly the Kirchners believe the price was worth 
it.  Time will tell.    End Comment 
 
WAYNE