Economy Minister Martín Guzmán did not lie yesterday in the Senate when he assured that the decision to raise withholdings on soybean oil and flour, the most value-added products of exports from the soy complex, was not ordered by the Monetary Fund. In fact, the reality is rather the opposite since the text of the agreement that the minister defended before the legislators of the upper house suggests the exact opposite strategy. It does so in lax terms, but the definition was sufficient for the agro-export sector to be convinced until last week that the Government would not make progress in a retouching of export duties. They were wrong.
“There is no commitment made in the context of the program with the Fund on taxes or withholdings,” said the minister although, transcarton, stated that “the impact on food prices is significant and that it is clearly seen in the last three weeks. Doing nothing implies a situation in which this shock ends up being regressive”, feeding, now, the fears that progress will be made with wheat and corn, which for the time being official spokespersons dismiss.
Strictly speaking, in the more than 130 pages on which the understanding between Argentina and the Fund's technical staff was reflected, there is not a single mention of withholding. Yes, on the other hand, a clarification was included regarding the application of taxes on industrialized export products. “Finally, as conditions permit, we will continue our efforts to improve the efficiency of the tax system, for example by further reducing taxes on certain value-added exports,” reads on page 7 of the first attachment of the memorandum containing the economic and financial policies.
This assertion contrasts with the decision to raise rates precisely to the highest value products. Foreign sales of soybean meal and oil totaled about USD 19.2 billion in 2021, while the primary product, soybean, totaled just USD 2.7 billion. The initiative would bring, in fiscal terms, the modest sum of about USD 425 million, or the equivalent of 0.1% of GDP. While IMF technicians tend to favor the fiscal front and the closure of public accounts, even with the application of distortive taxes, today the agency's priority is the accumulation of reserves with a focus on reducing the exchange rate gap.
In this sense, the rule goes against the requirement to accelerate the devaluation of the official exchange rate in order, precisely, to improve the exchange rate for exporters and thus incentivize them to increase the settlement of dollars in order to accumulate reserves. An increase in withholding acts in the opposite direction: it worsens the value of the dollar received by those who export. Thus, the producer receives 39% of the international price (in dollars) by discounting 33% of withholdings plus the exchange rate gap.
“It is contradictory, but with such a large increase in commodity prices, it is expected that the government will want to appropriate part of that income,” the former director of Argentina told the IMF, Hector Torres. “What makes no sense is to increase only, or more, the withholdings on processed products than on the inputs with which they are made. It's like taxing work that adds value. Usually it's exactly the other way around. Particularly when tariffs on export markets are higher for processed products than for unprocessed products,” he said.
Hence the surprise and anger among the actors of the camp, who until last Friday disbelieved a measure such as the one announced. “We understand that there are no legal conditions today for the Government to issue a decree and raise withholdings, since the Solidarity Law ended and this year's Budget was not approved. They should get the approval of Congress,” a leading cereal sector executive told Infobae last week, adding: “We must also remember that in the agreement with the IMF there is a mention of a downward revision, albeit with little definition. But nowhere in this agreement is there a rise in withholding.”
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