Economic Storm Batters Argentina's Breadbasket

"The fall in prices has been huge, 30 to 35 percent," says farmer Héctor Farroni, left, shown with agronomist Walter Guillaunmet. "The months ahead will not be easy." (By Silvina Frydlewsky For The Washington Post)

Vowing to curb poverty and redistribute wealth, President Cristina Fernández de Kirchner increased export taxes to fund popular social programs -- a policy initiated by her husband, former president Néstor Kirchner. In March, the government tried to raise them even higher. Under a proposed plan, the taxes on soybeans, for instance, would have risen from a fixed rate of 35 percent to a floating rate of about 44 percent.

Already facing rising costs for fertilizers and pesticides, tens of thousands of farmers protested, putting up roadblocks that crippled commerce and halted exports. Prices shot up. Fernández de Kirchner denounced the farmers as coup plotters and oligarchs.

Only when the vice president, Julio Cobos, voted against the proposal in July was the tax shelved. But the damage was done -- Argentina had lost $6 billion in export earnings at a time when commodity prices were high. Agripac, a Buenos Aires policy group that consults for agribusinesses, projects that export revenue from farm products will fall to $25 billion next year, down from close to $40 billion this year.

"The crisis in the countryside affected the government greatly, and it will pay for it in the future," said Pablo Adreani, an economist at Agripac. "It will not pay for it today. It will pay in 2009, in 2010."

Among those who have been hard hit is Néstor Forti, 71.

Like many others here in Alfonzo, Forti is a descendant of poor Italian immigrants who arrived in this region in the 19th century. On 321 acres, small by local standards, Forti grows soybeans, corn and wheat. He said the combination of taxes, high prices for supplies and the credit crunch is hammering him.

He explained that the cost of planting corn on a hectare -- nearly 2 1/2 acres -- runs about $600, and earnings fall just below that. "There have always been highs and lows in Argentina, but a fall like this I do not think I have ever seen," Forti said. He blames the worldwide financial crisis, in part. But he directs much of his ire toward Fernández de Kirchner's government.

"They say they want to redistribute wealth, but they do not redistribute anything," he said. "The only thing they are redistributing is poverty."

The government and its allies reject such criticism. Héctor Recalde, a lawmaker who supports the president, remains optimistic about the farm sector and its role as an engine of economic growth. "There will always be demand for what we produce -- unless the world is no longer hungry," he said.

The government responded to the crisis this month by announcing plans to use $3.9 billion drawn from state-run banks and newly nationalized pension funds to provide low-cost loans to farmers and industry. Fernández de Kirchner said the government would reduce export taxes on wheat and corn by five percentage points, to 23 and 20 percent, respectively.

"It's a policy to spur these two products that are fundamental, not just economically, but culturally," the president said.

But even if output expands, economists believe a recession is on the way in Argentina.