Argentine ags trade fears higher export taxes amid election shock

The increasing likelihood that Argentina’s incumbent President Mauricio Macri will lose the presidential election in October has stoked concerns in the country’s grains and oilseeds market that high export taxes – a trademark policy of the previous government under the populist Cristina de Kirchner – will return.

The results of a primary election on Sunday were a massive setback for Macri’s market reform-centred agenda, hugely heightening expectations that the centre-left, interventionist coalition Frente de Todos will take power just months from now.

If this comes to pass, the new government is expected to implement fixed export taxes in a reprise of the policies of former president De Kirchner, who is a running mate of the centre-left’s leader Alberto Fernandez.

That is because further falls in the peso – which on Monday at one stage plunged 30% against the US dollar – will make the flexible formula enacted by the Macri government less sustainable.

At present, the export tax formula for corn and wheat is calculated as 4 pesos for every US dollar that is exported, while for soybeans, the current tax is at a fixed 18% with an additional 4 pesos for every US dollar over that threshold.

But since yesterday, the value of the variable 4 peso level has become lower,  paving the way for a possible hike in taxes if government coffers start to dry up.

"Under [currency] devaluation, export taxes became cheaper day-on-day," an Argentinian broker said in reference to the fall in the proceeds of export taxes as the value of peso crashed.

Market sources based in Argentina said it is likely a potential left-wing government will raise export taxes, particularly on wheat and corn, to around 20%-23%.

“That would be honey for a new [Frente de Todos] government," a source said.

IMF loan

“A new Kirchner administration will tax exports [more] if they run out of IMF assistance. Although you would not expect that to happen during 2019,” an Argentinian broker said.

Fernandez has vowed to renegotiate the terms of a $57 billion loan the country received from the International Monetary Fund in 2018 intended to help the heavily-indebted country to service future borrowing.

Farmer sales

Despite the initial reluctance to sell soybeans following the peso’s crash on Monday, reports from market sources on Tuesday indicate that at least 250,000 mt of soybeans were sold on the domestic market in Argentina yesterday as farmers sought to capitalise on the fall in the peso despite expectations that the currency will fall further in the coming months.