ECONOMY-ARGENTINA:
A Cold Wind from the
Pampas
By Marcela Valente
BUENOS AIRES (IPS) -
Over 100 days of
conflict in Argentina's
farm sector, where most
of the latest record
crop is safely stored in
silos, has cooled the
pace of consumption and
caused a general
slowdown in economic
activity, which had been
expanding at an
unprecedented rate since
2003.
"There has been a
certain amount of
cooling," economist
Marina Dal Poggetto,
co-director of Estudio
Bein & Asociados, told
IPS. "We have not seen
an inter-year fall in
consumption, but there
has been a slowdown."
According to the
consulting firm, the
conflict between
farmers' associations
and the government has
knocked one percentage
point off the gross
domestic product (GDP).
"The strongest impact is
on expectations," Dante
Sica of the consultancy
abeceb.com told IPS.
"Negative expectations
have worsened in
industry and among
consumers." For example,
sales in the big
shopping malls rose by
15 percent in 2007, and
have fallen by 10
percent so far this
year, he said.
"The level of economic
activity has not been
seriously affected so
far, but if the conflict
that began in March (and
is now suspended)
remains unsolved, there
will begin to be
noticeable effects in
the real economy," Sica
warned.
Other economists
consulted by IPS agreed
with this analysis. The
Fundación Mercado
(Market Foundation),
headed by Oscar Liberman,
indicated that
consumption was still
high in May, in
comparison with the
lower levels recorded
before December 2005.
Fewer cars, domestic
appliances and houses
are being sold, and
fewer loans are being
taken out, the expert
said.
Similarly, SEL
Consultores, headed by
sociologist Ernesto
Kritz, said in its June
report that "after five
years' growth at nearly
nine percent a year, the
Argentine economy
appears to be slowing
down," and it was
difficult to predict
"whether its landing
would be rough or
smooth."
Estudio Bein forecasts
around 7.5 percent GDP
growth this year, which
is high compared to the
Latin American average,
but lower than that for
previous years. "Wealth
has not been destroyed,
but economic activity
has slowed, especially
in the provinces," the
consultancy says.
In the circumstances, it
is surprising that
farmers have achieved a
record harvest. Striking
producers have gathered
in 48 million tonnes of
soybeans, the country's
main export crop which
occupies half of its
cultivated land. At the
current price, it is
worth 27 billion
dollars, nearly half of
which will go to the
government coffers.
The farmers' conflict
exploded in March over
the decision by the
centre-left government
of President Cristina
Fernández to raise its
levy on soy exports from
35 to 42 percent, and on
sunflower from 32 to 39
percent.
The government's
rationale for the
measure was to use part
of the windfall profits
of the agricultural
sector, derived from
high commodity prices
for grains and oilseeds
because of increasing
demand from Asia and
futures market
speculation, for social
investment.
Fernández's decision
outraged landowners,
agricultural companies
and farmers'
associations, especially
those representing the
smallest farmers,
leading to roadblocks in
14 of the country's 24
provinces.
The government
introduced compensation
for the taxes for
small-scale farmers and
landowners, but failed
to overcome their
objections. Farmers'
associations stopped
selling grain for
export, and the measure
took a heavy toll on the
industry and the
provinces.
The farmers' strike and
the barricaded roads
caused food shortages
and prevented transport
of goods to the cities.
In the last weeks of the
strike, truck drivers
who had been left
without work also
blocked traffic to
express their
disapproval, this time
completely, and worsened
the shortages.
The farmers'
associations finally
suspended the protests
on Jun. 20, after the
government sent a draft
law to Congress in order
to transform the decree
now in force into law,
if enough lawmakers
approve it.
"The impact of the
roadblocks was felt
mainly in the
provinces," said Dal
Poggetto. Thousands of
shops in places where
farming is the main
activity were the first
to feel the pinch. Sales
fell by an estimated 30
to 50 percent during the
three months of the
strike.
In industry, the most
affected were the
automobile sector,
construction, meat
processing plants and
the manufacture of
various foods.
In the central province
of Córdoba, the
Argentine Industrial
Association (UIA)
reported that companies
had to suspend or send
on vacation some 20,000
workers because of the
crisis.
One of the worst hit was
the agricultural
machinery industry,
which experienced a
sharp fall in orders for
the second half of this
year.
The slowdown in the pace
of productive activity
was a direct result of
the crisis, but there
were other, indirect
impacts, Dal Poggetto
said. The largest such
effect was on financial
markets.
The Central Bank had to
sell several billion
dollars from its
reserves, to avoid
devaluation of the
national currency, the
peso, against the
dollar, because of
increased demand for
foreign currency.
Private and savings
banks, concerned about
the rising level of
conflict, sought refuge
in the dollar. However,
the Central Bank's
international reserves
have grown again, and on
Jun. 27 stood at 47.6
billion dollars.
Thanks to the
intervention of the
monetary authority, the
peso has appreciated
against the dollar from
its weakest point in
May, when the exchange
rate was 3.18 pesos to
the dollar, to the
current rate of 3.02 to
the dollar. But the
backsliding that
occurred during the
crisis, which helped
ease financial
uncertainty to some
extent, is beginning to
worry exporters.
Meanwhile, banks doubled
interest rates in order
to keep their
depositors' money. The
governments of Néstor
Kirchner (2003-2007) and
of his wife and
successor Fernández,
refused and continue to
refuse to use this
mechanism to control
prices, although it has
in fact now been imposed
by the banks.
"Raising interest rates
is a measure for
containing inflation,
but here it has been
adopted in response to
market pressure, and
that is a waste of an
instrument that,
otherwise, could have
been used positively,"
Sica complained.
He added that once the
farming crisis is
solved, the government
will have to deal with
its pending agenda.
This is another
consequence of the
farmers' conflict. While
fighting this battle,
the government has
allowed other problems
to become more acute,
among them inflation,
which private sectors
calculate to be around
25 percent a year, the
lack of investments, and
the energy shortage, the
analyst said.
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