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Argentine leader backs down, drops farm tax

Latest update : 2008-07-19

Argentina's President Cristina Fernandez de Kirchner has cancelled a controversial tax on soybean exports after the Senate rejected it following major farmers' protests.

Argentine President Cristina Fernandez repealed a tax hike on soy exports on Friday after the Senate rejected it, handing her a stinging defeat in a long conflict with angry farmers.

 

Levies on grains and oilseed exports will return to fixed rates in place before Fernandez used an executive order in March to impose a sliding scale-system linked to global prices, her cabinet chief said.

 

The tax hike unleashed four months of farmers' protests and Fernandez made it a defining issue of her 7-month-old presidency, leading street rallies to counter farm demonstrations and generate public support for the move.

 

Farmers praised Fernandez's decision to finally back down and repeal the tax hike on Argentina's leading crop, soy, which represents nearly one-quarter of exports in one of the world's agricultural powerhouses.

 

Argentine stocks and bonds rallied as investors hoped it signaled an end to a prolonged conflict between the government and farmers, who launched strikes that disrupted grains exports and caused sporadic food shortages.

 

Early on Thursday morning, in a surprise outcome after an all-night debate, Vice President Julio Cobos backed farmer complaints over the tax increase and cast the deciding vote to defeat it. The vice president presides over the Senate and stepped in to break a deadlocked vote.

 

The Senate vote was a sharp blow to Fernandez, who had repeatedly refused to drop the controversial tax hike, saying it was needed to redistribute the bounty of high global prices to poor Argentines and contain rising domestic food prices.

 

Farmers said it threatened to put many small- and medium-sized farmers out of business in the country, one of the world's biggest suppliers of soy, beef corn and wheat.

 

The tax was also criticized as an attempt by the government to fund higher spending, especially rising energy subsidies.

 

Political analysts said the government had been weakened by the farm crisis and that Fernandez will likely be forced to moderate her combative style.

 

Because of the link to global prices, the new tax had raised export tax rates on soy, Argentina's top crop, to about 45 percent from 35 percent. Taxes on sunflower seeds were also increased.

 

Soybean futures in Chicago slid on news the tax was being repealed.

 

STREET PROTESTS

 

Fernandez last month announced she was sending the tax hike to Congress after protests by farmers and ordinary Argentines who took the streets in pot-banging protests,

 

The lower house of Congress narrowly approved the measure, but senators from Fernandez's Peronist party rebelled as farm groups persuaded them it would hurt the agriculture sector.

 

Cabinet chief Alberto Fernandez, who is not related to the president, told Reuters the government may craft a new farm tax initiative to send to Congress.

 

Agricultural leaders cautioned future agriculture policy would have to address farmers' concerns.

 

"We're celebrating this. It's an important thing for our farmers that after four months of struggle and the historic process we've seen in Congress, the government has taken note," said Eduardo Buzzi, president of the Argentine Agrarian Federation, one of the four groups that led the protests.

 

He said soybean export taxes should never go higher than 35 percent and that small producers should receive some form of tax rebate to be able to compete with large agricultural firms that control vast swathes of land.

 

"Now we can make up for lost time and get back to work," said Luciano Miguens, president of the Argentine Rural Society, a leading farm group.

Date created : 2008-07-19

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