What is happening in Argentina?

By Guil Signorini, Department of Horticulture and Crop Science, The Ohio State University

Javier Milei, the new president of Argentina, has drawn the attention of the global press since he took office on Dec. 10 last year. Milei represents the anti-establishment and interrupts a sequence of 23 years under the executive leadership of the Justicialist Party (JP), a left-leaning party. The 23-year PJ run was interrupted only once between 2016 and 2020, when the Argentines elected Mauricio Macri president. Macri’s term ended with a bitter taste of frustration as he failed to implement any significant changes in how the country was run.

President Milei started his term quite differently. On Dec. 27, 2023 (less than a month in office), he submitted a collection of 664 proposals to Congress in an effort to implement the political, social, and economic reforms that convinced his supporters. The reformist project titled Bases and Starting Point for the Freedom of Argentines tackles sensitive issues in many sectors of the economy, including agriculture and livestock.

Before presenting some of the proposed changes and the status of the debate, it is worth summarizing Argentina’s macroeconomic situation. The International Monetary Fund (IMF) reports that Argentina’s economy shrunk more often than it grew in the past 10 years. Between 2014 and 2023, the aggregate gross domestic product (GDP) growth was 0.8%. The inflation annual rate escalated from 10.6% in 2013 to 121.7% in 2023. For comparison purposes, the U.S. GDP grew approximately 5% per year (55.4% aggregately) in the last 10 years, and the annual inflation rate varied from 1.5% in 2013 to 4.1% in 2023. Approximately 40% of Argentines live below the poverty line today. The country leads the charts with a $46 billion outstanding debt with IMF. Its debt reached 89.5% of the gross domestic product (GDP) in 2023, and payment defaults on international sovereign debts happened twice in the last 10-year period (2014 and 2020). It is a dire crisis.

Along with Milei, most of the population believes Argentina must restructure itself and resume its position as a thriving economy recognized for its agribusiness and abundant natural resources. From a macroeconomics perspective, Milei’s plan has merits. Right off the bat, the new president committed to reducing the fiscal deficit by cutting government spending and closing some ministries while downsizing and recombining others. Milei also announced a comprehensive plan to devalue the local currency, increase the country’s dollar reserves, and reduce the autonomy of the Central Bank in printing money to pay for existing policies. Milei received compliments from renowned economists from the IMF, consulting groups, and multi-national banks for taking these audacious and yet necessary measures to control the public finances in a short period in office.

However, difficult times require vigorous actions. With the goal in mind and directed by a plan, Milei also focuses on rebuilding the national coffers from a revenue angle. He proposes to revoke a popularity-seeking reform passed on October 2023 (less than a month before election day) by then-Economy Minister Sergio Massa and presidential candidate. Milei’s proposal lowers the monthly salary threshold for tax exemption to $1.3 million pesos (approximately $1,580 dollars) to boost government revenue at this critical time. The proposal also predicts quarterly reviews on the exemption threshold as soon as the inflation status cools.

Important proposals were also directed to agriculture and livestock. Consistently in the plan to reorganize the public accounts, Milei’s reformist project proposes increasing export taxes from 31% to 33% for all soybean-based products and from 12% to 15% for all wheat and corn products. A total of 35 other agriculture and livestock products of importance for regional economies remain free of export taxes. Analysts contend that the timing for this part of the reform is inadequate. Global soybean meal stocks are at high levels, pressuring future prices down from March 2024 onward in Chicago. This last week of January, future prices have recovered slightly but continue lower than $412 per short ton in December 2023. March through December 2024 prices are bullish and ranging from $360 to $364 per short ton at CME. The Argentine analysts’ argument builds on the fact that crushing margins will decrease due to lowering international prices and the increasing export taxes intended by Milei.

The current soybean season in Argentina is set for success. USDA projects Argentina to produce 50 million MTs of soybeans against 25 million in 2022/23. Last season, Argentina was forced to import record amounts of soybeans from neighboring countries to maintain crushing operations in business. Crushing margins were certainly tight then. The country is the world’s largest exporter of soybean meal, accounting for approximately one-third of the international market.

The new government also aims to improve the legal security for companies with patented intellectual property (IP) in the country by changing the current law. At present, corn and soybean growers are protected from paying royalties over their production if the seeds used at planting were saved from previous seasons. Approximately 80% of grain growers are estimated to plant their crops using saved seeds, regardless of origin or existing patents. Finally, Milei’s reforms propose to strengthen the biofuel segment. The project determines an 18-year period for biofuels to gain participation in existing motor fuel mixtures. As presented, only biofuels produced from nationally grown inputs will be considered in the program, which enhances the domestic demand for agricultural products, generates development opportunities, and creates jobs. The program idealized by Javier Milei resembles the Brazilian renewable fuel program, where ethanol and biodiesel together account for approximately 26% of all motor fuel burnt in the country.

If we did not know the Argentines’ propensity to protest, we would be surprised to hear it. This last week of January is marked by unionized workers’ strikes and industry associations holding meetings to articulate the rejection of Milei’s proposals. On the other hand, Milei did warn the country that “shock therapy” was necessary. What remains to be seen is how a Congress with most seats taken by the opposition will react. The IMF is favorable to his measures. Perhaps the congressmen should be receptive as well.

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