With the purpose of ensuring in 2007 an inflation of one digit, the Argentine government announced subsidies for items making up the basic food basket to be partially financed with additional taxing on soybean exports.
Economy minister Felisa Miceli said Thursday that as of next Monday the tax on soybean exports, currently at 23.5% will increase to 27.5%, and for soy derivates from 20 to 24%. This will allow the Treasury to increase revenue by an estimated 400 million US dollars with an additional 100 million to be provided by the Treasury, thus completing the 500 million US dollars demanded for the subsidies operation. "Prices of those items which will now be strongly subsidized should begin to drop significantly", said Miceli who justified the additional tax points (which had been discarded by the government several weeks ago), arguing that "Argentina will harvest in 2007 an extraordinary crop from all different cereals". "The government supports the subsidies policy since it believes it is a priority to preserve the purchasing power of Argentine salaries and the value of such goods" as milk, bread and wheat flour. Miceli insisted that the measure will have a positive impact on the basic food basket since while international prices of agriculture commodities increase, "it won't impair the dinner table and salaries of Argentine families". The announcement was made when price increases in private medicine, tourism ÃÂ¢€"in full season--, and gas transport are indicating that Argentina's consumer prices index in January could reach 1.5%. Unionized labor, which is particularly strong in Argentina, has also announced it will be demanding a 19% salary increase in the next round of negotiations. Consumer prices are a significantly sensitive issue for the administration of President Nestor Kirchner who this year faces a presidential and congressional election next October, and because an estimated third of the Argentine population still live below the poverty line. Inflation in 2005 reached 12.3% and in 2006, 9,8%, but with an already extended subsidies' system and strong arm twisting from government forcing the private sector to accept a virtual "prices' control" and temporary banning farm produce exports when they caused an impact in domestic prices. "They've decided to pinch more money from farmers' pockets, 400 million US dollars to be more exact", complained a source from the strong farmers associations. "Nobody is happy with this decision", he insisted. The Argentine crop of soybeans in 2005/06 reached a record 40.5 million tons and for 2006/07, according to the grains Exchange from Rosario, a total 43 million tons will be harvested. Following Miceli's announcement the value of soy beans dropped an average 5 US dollars per ton in Argentine cereals exchange markets. The Kirchner administration has previously threatened or adopted similar actions with dairy produce, wheat and wheat flour and beef when the domestic prices soared in line with international markets. Last March the government banned all beef exports until domestic beef prices begun falling; four months later it agreed to a gradual lifting of the ban for exports to those countries that had beef purchase contracts with Argentina. Finally last November, a fragile equilibrium was reached, and the ban was limited to 30% of exports.