Major Civil Unrest Going on in Argentina

Argentina is on the doors of a major civil unrest. In fact, 19 days ago, farmers all over the country have cut major routes and roads and do not allow the passing of trucks transporting agricultural commodities to the cities or to the port (for exports). No food is allowed to go the cities and supermarkets are already out of stock on meat, flour, milk and basic food needs.

Why is his happening?

Argentina is major agricultural producer. All its economy is based on the production of agricultural commodities, mainly, cows, wheat, corn, and soy. Worldwide demand of this economy has pushed process of these commodities to levels that have made the exportation of agricultural commodities a huge business for companies, individual, and for the Argentine country.

In 2001-2002, one of the elected presidents was ousted from power. The country was going through a complicated situation. Inflation and unemployment were rampant and riots were happening everyday. After the country went through a series of provisional presidents (5 in a week), a definite election was set up in which Nestor Kirchner won with about 22% of acceptance. After four years of what were seen as good policies his wife has won (on December 10^th, 2007) another presidential election.

During the Kirchner´s administration a new Tax was implemented on agricultural production. That tax collected a great amount of money that was used to stabilize the country mainly by the establishment of subsidies to the people who was unemployed and through populist measures.

That tax, called "retenciones" is basically a sale tax on commodities and it started at about 20% of sale and was raised progressively to around 28% as of the beginning of last year.

Nineteen days ago, the ministry of economy announced that "retenciones" would be increased for soy (the star of commodities) to 41%. This latest increase has met resistance by farmers and producers, especially from those little or medium-sized producers.

Now let explain why there is resistance to the new tax. Suppose you produce $100 of soy. The moment you sell it, you are taxed by the "Retenciones" tax in the amount of $41, so you are left with $59, then you are assessed a sales tax of 21% so you are left with $46, then you have to deduct costs (which are an average of 30%, that is 30% of the original $100 produced) so you are left with 46-30 equal $16., then you have to deduct income tax (of about 25% = .25*16= 4) so you are left with $12.

So the State takes $61 ($41+16+4) and the farmer $12. Now this calculation is so if production costs are at 30% (which is an average). The range of production costs can go as little as 3% (for big farmers) to 50% for very small farmers. So for a very small farmer you have cost of $50 so they can get a net loss.

Now you may think, well is a business and you can lose money but the issues here are two: 1) the increase is implemented when farmers have to saw, have worked with a retention tax of 33% (not 41%), costs have increased dramatically during 2007 and 2) the national constitution establishes a top tax collection of 33% (so the increase is unconstitutional)

After about a week into the farmer protest, the President, Cristina Fernández de Kirchner, gave a national speech that treated badly farmers. She basically, said that it was the oligarchy trying to thrown up the government and that she was not going to act under pressure. This speech radicalized the protest. Road continued to be blocked but what happened next was that people in the big cities (Buenos Aires, mainly) got out the night of the speech and started to protest in solidarity with farmers. This was not foreseeable by the government. So now the government has not only farmers´ unrest (blocking roads) but also people from the cities that do not see their president as representative of their thinking. In addition that night, a strange thing happened: some civil groups called "piqueteros" went out to the streets with sticks to dissolve the protest. No police was around to stop this militia type of action, and people got really angry this action (although the government claims that "piqueteros" are not commanded by the government the truth is that its leaders and members receive huge unemployment governmental subsidies)

A second speech came last Friday from the president. This one was somehow more conciliatory. Leaders of the protest were called to "talk" with the government. The road blockade was lifted temporarily while negotiations were going on in Buenos Aires Central government. The negotiations lasted 5 hours until Friday's midnight with no agreement on the parts. Negotiations were postponed until Monday. The bases of the protests (the farmers) reinstated the road Blockade and now it is stronger. No body can go through the road block.

"Cities will not receive food until the government suspend the 'retenciones' tax increase." This is what the farmer's movement says. The government is warning about the use of the judicial system (impossible because of the magnitude of the protest) to open up blocked roads. National Guard has been called in but also it does not have the personnel to act on a nationwide basis.

If the government does not change its course of action the major civil unrest will continue with unforeseen consequences.