Q&A: Argentina farm protests

Farmers argue that they produce much of the country's wealth

Argentina's farmers are on strike over rises in taxes on agricultural exports to allow talks with the government.

It is the biggest crisis faced by President Cristina Fernandez since she took office in December. Robert Plummer looks at its implications for Argentina's economy.

What are the farmers so angry about?

They began protesting after the government issued a decree raising taxes on soybean exports from 35% to 45% and imposing new taxes on other farm exports, including wheat.

Farmers say the move amounts to confiscation of their money and complain that ordinary Argentines have little to show for the country's high tax burden.

But President Fernandez has described the bigger farmers as "oligarchs" who have benefited from a worldwide boom in commodity prices - and said that some of their wealth should be redistributed to less fortunate citizens.

Is that the main reason for the government's tax rise?

Not exactly. In essence, the increase is a key element of what now looks like a failing economic strategy.

Taxes on agricultural exports from Argentina are nothing new. The country has had them for decades, both to raise revenue and to discourage farmers from selling food overseas that is needed at home.

Under the free-market policies of President Carlos Menem, many of these taxes were slashed during the 1990s. But following the December 2001 economic crisis that saw the collapse of the peso, they were raised again by President Kirchner.

At the same time, the government imposed price controls on various staple foods and forced power and water companies to freeze their tariffs.

As a result, economists have criticised Mr Kirchner and Ms Fernandez for resorting to interventionist quick fixes, rather than taking unpopular decisions such as raising interest rates to curb inflation and slow the overheating economy.

What effect is this having on the Argentine economy as a whole?

It's difficult to tell, because few people believe the government's own statistics.

In January 2007, the head of the consumer price index office at the INDEC national statistics agency was replaced, in what was widely seen as a politically motivated decision.

Since then, leading economists, consumers' groups and even INDEC's own employees have regularly accused the government of manipulating the inflation figures.

Officially, prices in Argentina rose by 8.5% in 2007.

But at a demonstration two months ago in Buenos Aires, INDEC staff brandished placards alleging that the true inflation rate for the year was more than 22%.

And what impact has the farmers' strike had so far?

Consumers are certainly feeling the pinch. Farmers have been blockading major roads and disrupting food deliveries, leading to shortages of beef, milk, cooking oil and other products in Argentine supermarkets.

Traffic jams have caused problems around the country, while many long-distance bus services have been cancelled.

But the government has stood firm, at least for now. Having increased its reliance on export taxes to finance its spending, Ms Fernandez's administration can hardly afford to back down lightly.

And with growth in government expenditure already forecast to outstrip growth in its revenues, it may not be too long before her whole economic strategy comes unstuck.