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 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.

Pesoification

As promised yesterday, I'm going to explain why I think that the decission of the Supreme Court about the pesoification of dollar-denominated frozen bank accounts was the right thing to do. But first, a note...

We Argentinians are like those insecure types that mask their distress by posing as overconfident. To the outsiders, Argentina is the greatest country in the world, our women are the most beautiful, our football team is invincible, Maradona is God, our beef is the very tastiest, the Pampas are the Granary of the World, and we're the friendliest, warmest bunch of folks on the face of the Earth. We don't take outsiders' criticism very well. Yet when discussing our country among ourselves, all conversations eventually conclude that Argentina is and will ever be un país de mierda.

On the same line, we like to ramble about our nationalism, our love for own land, the need for all citizens to truly support Argentina and be passionate about it, as in the top countries. Then we turn and continue screwing up the country by voting for notoriously corrupt politicians, by selling our national resources to foreign corporate predators, or by taking all our savings, exchanging them for a foreign currency, and sending them abroad to live off interest, instead of investing it here.

Regarding the last point, most Argentinians will tell you that amassing dollars has historically been a good idea because our shitty economy keeps crashing every decade, and it's a bad idea to trust that Argentina will reward your work and your investment in any way.

Such point of view is self-defeating, and such previous assumptions of doom are obviously self-fulfilling; how can an economy be stable when everybody's hoping it'll explode any time? Even as most Argentinians danced at the tune of Convertibility Era, where one peso equaled one peso by law, they continued keeping their savings in dollars, and many had offshore accounts.

When you have to give US$1 to anyone who approaches you with AR$1, you'd better have a lot of US$. You'd better make sure that you export more than you import, and that you have enough extra bucks to pay your foreign debt installments. And you should have some way to control what happens when outside influences rock the dollar.

Argentine foreign trade, 1992–2004
(in millions of USD)

Argentina tended to import more than it exported, borrowed a lot of dollars, and privatized utilities that were actually profitable. Its monetary policy was basically controlled by the U.S. Federal Reserve. When the Fed raised interest rates, speculative money flowed into the U.S. and out of the developing world. When the dollar revalued internationally, Argentine exports became even less competitive. When Brazil devalued its currency, it became worse, and multinational business moved there because it was cheaper. When East Asia, Mexico or Russia had a financial crisis, investors fled developing countries. Argentina could not do anything but try to amass dollars to act as a shield. In the rigid context of the Convertibility Law, money simply could not be generated internally; if you needed more pesos in circulation, you needed to have more dollars in the Central Bank's reserves. There were two ways to get dollars: the good one, by exporting more; the bad one, by borrowing. So that we could export more, the government of Carlos Menem opened up international trade so companies could buy shiny foreign machines without tariffs, and crushed the spirit of labour laws so companies became more competitive. Of course, this killed whole sectors of the economy that couldn't cope with an invasion of cheap imports, and sent millions of people to permanent unemployment or precarious jobs. Companies doubled their exports, but imports grew as well, and tourism sent more dollars abroad too — for all our talk of the beauty of our country, Argentinians chose to grace the beaches of Punta del Este and Cancún, to celebrate their daughters' 15th birthdays with a trip to Miami, and to tour the fashionable places of Europe, where they felt more at home than in poor dirty Latin America. It was cheaper to go to a Caribbean resort than to visit the Iguazú Falls, and it was also cheaper to buy Greek peaches and German recordable CDs than to grow our own peaches or manufacture our own CDs.

When a series of crises hit the world economy, we were utterly unprepared. We could've saved ourselves; the solution was to set up strong controls on the movements of foreign currency and speculative investment across the border, start a process of import substitution, and devalue the peso gradually. Our politicians decided they'd let us live our dellusion for as long as possible, though, since devaluation meant inflation and it was political suicide even to suggest it. Moreover, why do it, if the IMF kept telling us it was OK and showing off Argentina to the world as the best example of a modernized neoliberal economy?

When it became obvious that we wouldn't be able to pay our foreign debt, cautious people started taking dollars out of the country. Those who could bought dollars to have a reserve of strong currency in case of a devaluation. This only put more pressure on the Central Bank. Domingo Cavallo, our hyperactive Economy Minister, froze all bank accounts, so that nobody could withdraw but 250 pesos a week. That was much more money then that it is now; I earned about 400 pesos a month. Then came the food riots, the popular revolt, the president's resignation, and the new president Eduardo Duhalde. Duhalde knew he had to devalue the peso. He decreed that dollar-denominated accounts would be pesoified — nobody would get actual dollars anymore; if you wanted your money, you would get pesos at the rate of 1.4 per dollar, the new official exchange rate. Soon the dollar was floated freely, and the rate climbed to two, three, almost four pesos to the dollar in a matter of months, as inflation surged. Suddenly those Greek peaches were not so cheap, and those German CDs were costing 4 times as much as before. Gloomy forecasts were made: the rate would climb to 10 pesos per dollar, Argentina would default and be isolated from the rest of the world in shameful humiliation.

Why did this not happen? Because people's money was trapped in the banks, and because the currency speculation game didn't work. Under the usual scenario, people would wait for the exchange rate to be high enough, then take their dollars out and sell them for pesos, getting 3 times as much as they had put in the bank minus inflation, and royally screwing the rest of us — since all those pesos would fuel a huge inflation. People would also buy more dollars, knowing that the rate would climb even higher, and take them to a safer place.

What happened was that angry savings holders forgot their middle-class manners and assaulted the banks, breaking their windows, spraying their facade with paint, and setting fire to tires before their doors, as well as deploying armies of lawyers against the banks themselves and the government. I can't blame them for being furious; we're talking about the savings of their whole lives, sometimes savings they needed to pay for a house or a car they'd just bought, for a self-imposed exile in Spain or Italy, or even for an expensive heart surgery. What I remember resenting, and resent even now, is how they seemingly forgot that they'd brought it upon themselves, and that (for most) their plight was nothing compared to the ever-worsening hell of their poorer compatriots. Maybe 500,000 people had significant dollar savings in Argentina — they were privileged, the top 1% of the population. Yesterday I heard on TV a savings holder that complained about the lack of support of the rest of society — it sounded exactly like "How come you pity and subsidize the poor and the unemployed and you don't help us getting back our billions in strong currency?". My dear compatriots, forgive me if I can't muster any pity for you.

This is undoubtedly (and unashamedly) my own biased opinion, formed through years of suffering, and seeing my family suffer, under an economic model that worked only for the rich. Abstractly I know they didn't deserve to have their savings confiscated and plundered. Maybe it would've been the same if they'd decided to invest their money in their own country or keep it in their own currency, to demand their government to get things straight, and to think carefully that maybe they were supporting a policy that would lead us all to disaster..., or maybe it would've been different. We'll never know.

Do we ever learn from our mistakes? Let's hope that at least.