08 November 2007

Retentive government

Papa K is raising the export tariffs for grains again. I think export tariffs (not import — export) are a unique phenomenon in the world. Here we call them retenciones, which means retentions. The idea behind not calling them taxes is that the government is not just keeping money for itself, but retaining a part of the "excess profit" that the farmers make thanks to the internationally high prices of commodities and the locally high exchange rate. This "retention" theoretically keeps local prices in check and discourages producers from selling all of it abroad and leaving the local market unsupplied (is that a word?).

That's the theory at least. In truth, what happens is that the farmers, even with a 35% tariff deduced from their sales abroad, are getting filthy rich, while screaming all the time at the top of their lungs that they're desperately poor, and that the big bad government is snatching away the bread from their children's mouths. So desperately sinking into poverty they are, they've been increasing their crops and setting higher yield records every year since 2002. One of these days I think I'll wake up and see my garden turned into a soybean field.

Soybean field, Buenos Aires Province, Argentina
Soybean field in Buenos Aires Province. Original image by Alfonso.

One assumes that, if selling abroad with such high tariffs were no good, then the farmers would stop doing it. The local market is not big enough for soybean and sunflower, but then we do need other stuff. Like tomatoes and potatoes, for example. And beef and milk. You can't have cows munching on expensive high-yield pesticide-resistant transgenic soybean, can you? (Soybean is displacing other crops, as well as cattle farming. It's also displacing natural forests, and is being planted in soils that will quickly deteriorate. See "Argentina: la cuenta regresiva para el granero del mundo" [via Pehuen.org, in turn thanks to Chileno].)

The government is keeping a lot of money that it wouldn't be getting if it weren't for the high exchange rate. If the price of the dollar in pesos went down, the national state would be deprived of much-needed funds (in fact, the fiscal surplus would evaporate), and the farmers would also get a lot less in local currency. Since it's the government that props up the dollar artificially, the perverse scheme at work is transparent. The government and the farmers yell at each other while they support each other at the same time.

I don't have an ideological problem with export tariffs, like many of their critics. I think they're perfectly fine. They should be better implemented, probably, but they're not wrong per se. The rules are not the same here as in developed countries. In a country with a weak currency and a very small and underdeveloped local market, without export taxes, it makes financial sense to screw your own and sell abroad. And if the product has little to no added value, better yet, in the short term. Oh, farmers do have to invest a lot these days, but they're not advancing technology, they're just using top-notch off-the-shelf tech to seed, care for and harvest million of tons of plants. (Argentina builds and exports very fine agricultural machines, too. That's the way to go.) Retenciones make producers think twice and pay a little attention to the local market. In the case of soybean, which is not a local staple, tariffs should serve to stop farmers from turning the whole country into a massive monoculture field.)

The problem with the tariffs is that all that money ends up in the national state's coffers and doesn't go back to where it came from, or to where it's needed most. The crop-producing provinces get nothing for their efforts, and the other provinces (typically poorer) don't see the money of their rich cousins redistributed. Instead, the money funds the government's grandiose public works scheme (plus bribes for the minister in charge and overpriced items for his friends who win the bids) and its political machine.

Last Friday, the government sent AR$140 million (~US$44M) to the municipalities of Greater Buenos Aires, to be used at the discretion of their mayors. Legal (thanks to an obscenely dependent Congress who allowed the budget to be modified freely) but fishy. The GBA has been ruled by these robber barons and virtual mafia bosses since ever, and it was them who gave Cristina half the votes she got (many of which, for all we know, were bought and paid for). The GBA surely needs those funds, being the metropolitan area with the worst quality of life in the country, but it's obvious they're not being used to make life better for the residents. This week Papa K also sent AR$80 million to some provinces. You'll also remember, surely, how K cut ribbons of dozens of public works in various states of completion throughout the campaign.

This is the usual way of favouring your loyal servants before an election, and rewarding them after it. And it's possible only because the national government has a lot of money to spend, while the local governments have little. Santa Fe is among the provinces most harmed by this. Export tariffs are not redistributable by law like other national taxes, so our province, which produces and exports a lot of the country's grains and vegetable oil, is subject to the whims of the national government. Since Santa Fe is comparatively rich, however, it can (politically) afford to be fairly independent of those whims, and it's been punished for that. The new Socialist government, we hope, will protest more than the obedient Peronist one we've had for the last four years.

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