South America Calling

Argentine President Cuts Ag Tariffs; Now How About the Peso?

In his first major economic announcement, Argentina's new president, Mauricio Macri, swept away export taxes and restrictions on corn, wheat and beef.

Honoring a campaign pledge, he also cut the tariff on soybean exports from 35% to 30%, with an undertaking to reduce it at 5 percentage points per year going forward.

Speaking in front of a cornfield in Pergamino, Buenos Aires, Macri declared: "Argentina won't move forward without the help of farmers."

The announcement represents a sharp break from the policies of Cristina Fernandez, the previous president, who restricted exports to guarantee domestic supply and taxed grain shipments hard to raise revenues, thus bringing her into almost constant conflict with the farm sector.

Macri hopes the measures will prompt farmers to sell stocks, thus bringing in precious tax dollars.

But farmers will likely hold on to those stocks, which may total as much as 15 million to 20 million metric tons (mmt) in the case of soybeans, in expectation of a devaluation of the Peso.

Macri pledged to end capital controls that have artificially bolstered the Argentine peso against the dollar for the last four years. That would cause the peso to slip from its current official rate of 9.7 to the dollar, toward the black market rate, which on Monday stood at 14.8. If the peso fell only part of the way to the black market rate, that would obviously offer a big boost to soy exporters and local price have already risen in anticipation.

But Macri has to be careful, as dollar reserves are perilously low. His best course of action may be to bolster the reserves, via a bond issue or another Chinese loan, before letting the peso float to ensure there is no run on the currency.



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