BUENOS AIRES (Dow Jones)--Argentina's embattled economy minister, Martin Lousteau, is ready to offer concessions to protesting farmers in talks this week, but people close to him insist he has no plans to reverse the soy tax increase that prompted a destructive three-week strike last month.
Lousteau is "disposed to negotiate," said an associate of the Minister, who asked not to be named. "There are various ideas and he will continue working on a solution."
But although new concessions under consideration may go beyond rebates and other incentives already rejected by small-scale producers, the Minister has "no plans at all" to change the new soy export tax regime, the person said. Lousteau is "convinced that the measure is the correct one," he said, in reference to the new system that pegs the export tax rate to world prices for the crop.
When the new tax was introduced on March 11, effecting an 11-percentage-point increase in the rate, the second hike in four months, it prompted a massive farmer strike that paralyzed food flows for three weeks and left supermarkets short of meat, milk and other staples. Farmers eventually suspended their action on Wednesday, but insist they will revive their roadblocks if their demands are not met, especially for a suspension in tax hike.
The intransigent posture that the government has so far maintained on this issue has put Lousteau under fiery attack from farmers and urban middle class opponents of leftist President Cristina Fernandez.
Some Argentines, such as Oscar Bresson, a private citizen who published a scathing letter to Lousteau in La Nacion newspaper on Thursday, say the 37-year-old London School of Economics-trained economist is politically naive. "I understand that you are very young and that despite your studies and the (academic) titles you have you have no practical experience in agricultural matters and, from what I have read, you are also very poorly advised," Bresson wrote.
Others who see the measure running counter to Lousteau's mainstream economics training, seem convinced the tax hike was the work of hardliners within the government and that he is being used as a puppet.
"In reality, this was not a measure taken by him," said economist Emilio Dojas of Buenos Aires-based Research for Traders. "It was made by the President. They just channeled it through the Economy Ministry."
Regardless of who is responsible, "the only option now for Lousteau is to resign," argues economist Aldo Abram of consultancy Exante
Lousteau was unavailable for comment for this story, but his associate spoke for him. "I have known him for many years, and I would say that anyone who says he is naive or manipulated is completely wrong," he said, adding that the Minister's prior success in running Buenos Aires province's massive publicly owned bank proved his professional and political capability.
Lousteau's associate said the Minister has no plans to leave his job and is equally committed to the new soy tax regime, for which he takes "full responsibility." The tax "is a rationally conceived policy," said the member of Lousteau's inner circle, one that's aimed both at filling a fiscal hole and steering production away from a crop that has come to dominate the Argentine countryside.
Whereas farmers had seen the decision to bring the new sliding scale in at a higher effective rate as a gratuitous blow to their profitability, the Minister's associate said the jump in the tax rate from 35% to the 46% - according to the price in effect as of March 11 - was simply because "the price of soy had risen 50% in six months."
He noted that in October last year, the price net of taxes and costs cited in the April futures contract was $230 per metric ton, whereas the net spot price for April is now $280 even after the hike in taxes.
Likewise, the man said, there was no ill will intended in introducing the tax right when farmers were preparing their soy harvest, even though he acknowledged they had "a legitimate complaint." Rather, the timing was linked to the upcoming wheat planting season, which Lousteau's associate said left a narrow window if the higher tax was to work as way to discourage soy and instead promote other key crops.
Lousteau's associate also disputed the farmers' complaints that the Minister had not consulted them beforehand. "Martin has been in frequent contact with them," he said.
Nonetheless, there are clearly some regrets within the Ministry over the outcome of the decision and the confrontation it sparked. A response of "this magnitude" was not expected, Lousteau's associate said.
And some of that may have to do with the way certain elements of the policy change were handled and the message it delivered. Government insiders say that at least one item that especially irked the farmers was not drafted by Lousteau's team: the insertion of a very top marginal tax rate of 95%, a figure farmers called "confiscatory." That "came from people separate from the Minister," said Lousteau's associate.
Still, other hardline measures more or less came with Lousteau's backing. While he did not formally order customs officers to remove beef stamped for export from ships last week - a move that appeared to contradict the Minister's stated desire to help cattle ranchers and which prompted speculation that government rivals were undermining him - Lousteau supported these efforts to divert meat to supermarkets during the crisis, his associate said.
"When people say Martin is an orthodox economist, they are wrong," the man said. "He is quite clearly heterodox in his views. He believes strongly in government intervention in the economy."
Source: Michael Casey, Dow Jones Newswires; michael.j.casey@dowjones.com; 54-11-4313 1918