Wall Street Journal | January 15, 2002 | By MARC LIFSHER, Staff Reporter of THE WALL STREET JOURNAL
BUENOS AIRES -- Agriculture, which generates half of Argentina's exports, should be a big winner of last week's devaluation of the nation's currency. But try telling that to the farmers.
The government expects the current harvest of wheat, corn and soybeans to become even more profitable as the cheaper peso brings down the cost of labor, land and transportation. Experts agree that Argentina could see a 50% jump in agricultural exports, by volume, over the next five to seven years if the country follows the trend of neighboring Brazil, which devalued its currency in 1999.
In many ways, though, the nation's growers are just like other Argentine business executives, floundering in the confusion of the country's biggest financial crisis since the Great Depression. They are worried that the new government of President Eduardo Duhalde could hobble what has been a dynamic industry with complicated financial regulations, banking controls, potential export taxes and a cumbersome dual exchange rate. What's more, the agricultural sector -- growers, brokers and exporters -- is struggling with an estimated $9 billion debt and with fears that the nation's shaky banking system could cut off the flow of capital.
"They're afraid, and the whole system is in crisis," says Ricardo Baccarin, vice president of Banagricola SA, a brokerage firm that operates the Buenos Aires cash and futures market for grains. Farmers are unlikely to pursue aggressive sales programs until they receive firm assurances from the government that they can get access to the dollars they earn from exports, he says. Current banking regulations, aimed at preventing a panic, severely restrict the ability of companies and individuals to withdraw dollar deposits from their accounts.
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"People will keep their grain as a kind of hard currency if they can't take their money out of the bank," Mr. Baccarin says. "They'll keep it unsold and wait and see."
Farmers, who employed high-tech methods to double production during the 1990s, now wonder if they can keep up the momentum. Indeed, grain and soy shipments earned about $12 billion in 2000. "The increase has been just astonishing," says Eugenio Cap, an agricultural economist with the National Institute of Agricultural Technology, "but the problem is that we have a very successful agricultural sector with farmers who are deep in debt."
Farmers' biggest fear these days is that the cash-strapped Duhalde administration, grappling with an economic recession now in its fourth year, might try to reimpose a tax on agriculture exports that was lifted in 1991. The government is considering such a tax on the highly profitable oil industry, and farmers fear they could be targeted, too.
Growers are also skeptical of the government's creation of a dual exchange rate: fixed at 1.4 pesos to $1 for exports but allowed to float freely for most imports. In light trading Monday, the free market ranged between 1.65 and 1.70 pesos to $1, down about 40% from the reopening of markets on Friday. The dual system could create a kind of de facto tax on farmers. They may be forced to pay more pesos for needed imports, such as seeds and chemicals, while their income from foreign sales would pegged to the fixed, official exchange rate.
Leaders of top agricultural organizations, who met with President Duhalde Monday, say the government is promising not to tax exports and to allow production-related imports to come in at the favorable, official exchange rate. They are waiting, however, to see if the president's reported pledge will become black-letter fact when new economic regulations are published.
But what farmers really want is for the government to junk the dual-rate system. Such a setup is arbitrary, expensive and ripe for corruption, they say.
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