A "Country in Crisis" or a bunch of "Twits on the Loose"?

I think that the current farm crisis is a complex issue and one that has politics at its origins and not economics. So, I think to truly understand this conflict one has to look beyond the mere numbers.

However, if one does want to look at the numbers and the economics there are two clearly valid arguments. And I am not particularly taking a side in this matter either way. I see weaknesses not only regarding the positions of each side, but also in their methodology.

Going back a few years, Menem's government slashed farm taxes. In 2002 Nestor reinstated them starting them at 10%, and then quickly raised them to 24%, then 35% and now they sit at about 44%. So, certainly one can understand the frustration of the farmers.

The initial reason the government gave for the imposition of the new taxes was to avoid the "soyization" of the economy, meaning they were hoping that by increasing the level of taxes on soy, this would in turn compel farmers to turn to increased production of other commodities such as wheat, corn, dairy and meat. Now, the problem with this thinking has to do with timing. With Argentina as the number one supplier in the world of soy meal and soy oil, and number three in soybeans behind the United States and Brazil AND with international prices for soy on the rise, the question has to be asked: is this really the time to seek to limit soy production?

A couple of weeks ago, the government then changed its story and said the taxes were created to more fairly "redistribute the wealth" in the nation through Cristina's announcement a week ago last Monday of her "Plan for Social Redistribution". In an obvious ploy to manipulate public sentiment she announced the new taxes would be used to fund 30 new hospitals, erect public housing and make roadway improvements.

Now this raises several questions and Alfredo de Angeli, president of the Agrarian Federation in the Province of Entre Rios (and recent detainee) put it best when he raised the question: why was the government so determined to change things on March 11th through increasing the farm tax so dramatically if things were going as well as the government maintains. “Low unemployment, a multi-year cycle of economic growth, commercial and fiscal surpluses” seems to be the mantra of this administration.

The simple truth is that in this scenario, the only possible answer could be that this new "redistribution of the wealth" program is nothing more than an apparent need to have access to more funding to maintain political stability. The government itself has admitted that its claimed fears of "soyization" were not true. Will it step up and admit that this new "Plan for Social Redistribution" is a joke as well?

Okay, so let's take a look at the other side of the fence. And luckily this one is much easier to explain (or at least I am going to do so more briefly).

The government has been artificially setting the rate of exchange of the peso low (deliberately devaluing it) to increase the desirability of purchasing Argentine commodities on the international market. I believe it was January of this year that the government purchased a billion US dollars to achieve that goal. I know last year they were purchasing dollars by the hundreds of millions to achieve this aim. Speaking metaphorically, dinner has been served and the bill has arrived. As the farmers have been eating at this table of plenty, the government (and with good cause) wants them to chip in on the tab. After all it is they, who have been benefiting the most from the demand for Argentine commodities stimulated by a deliberately weakened peso. Can they really cry foul in the face of high demand for their products, created by government spending to devalue the currency? If the farmers are not going to ante up, who then is expected to refill the coffers of Argentina’s foreign reserves?

Second point: Argentina is an agricultural based economy. There really isn't much other industry developed in the country at the present moment. Sure it seems unfair that historically the farmers have had to fund infrastructure. However, if they don't - who else is there that can pay that bill? There is a lack of any other viable sector in the economy that the government can turn to in regards to such costs. That is unless, GASP PANT PANT PANT, one wants to ask presidents and former presidents to open their foreign bank accounts. LOL

So is there a point to all of this? Probably not. LOL But if there is it is this: as with most arguments, debates, standoffs and crises there are at least two sides to consider. And more often than not, both merit serious consideration. That is why in the end "COMPROMISE" is the key to "saving the day". Hopefully “the forces that be” will come together and get something worked out... In the meantime I am grateful that they produce a lot of malbec wine here.