A brief history of Argentinean “withholdings”

Asked to elaborate on any inconsistency between his complaints about historical withholdings in Argentina, and his support for an agricultural withholding (prior post), Jorge Aldao says:

The withholdings are good, first of all, if they’re taxes legally imposed by a Congress that represents (feh…should represent) all Argentineans.

In other words, if the public decides they’re all right, I accept them.

But above all, I’m in favor of them because they are indispensable to ensure that farmers don’t turn themselves over to soy because of the extraordinary earnings they can make from it.

Let me explain…if to have a dairy farm, with cows and milking barn, you have to pay many employees, veterinarians, medicines, etc. and “work like a slave” from dawn in order to clear 200,000 pesos a year, but planting soy, with very few workers and without having to get up at 4 in the morning, clear 600,000 pesos, logically you’re going to kill your cows and dedicate yourself to soy.

So, the way to preserve food sovereignty is to make it so that soy is not such a brilliant business (if the state were to appropriate a large part of the earnings).

These withholdings should also be applied to corn, sunflower and all the other “commodities” in order to guarantee that the earnings are the same whether the crops are produced for export or for internal consumption.

In this way, moreover, it would prevent the transfer of speculative inflation on commodities to the Argentinean people who earn their salaries in pesos, not dollars.

Also it seems essential to me that the withholdings should be, in addition to being lawfully created, turned into a tax that is shared and distributed among the provinces so that the provinces do not have to depend on the “generosity” of the ruling government.

Here’s a brief article on the history of withholdings:

The Liberal Face of the Withholdings of Mitre, Lonardi and Krieger Vasena

by David Cufré – Pagina 12

Translation: Machetera

The Sociedad Rural (Rural Society) supporting cast that applauded Luciano Miguens’ call to eliminate withholdings perhaps was not aware that the first to apply them in Argentina was a president that they’d never have dared to boo. Bartolomé Mitre put them in place in 1862 and from then on, the tax went on a journey that at this stage is still surprising. Its incorporation into the national tax is the work of liberal leaders from the 1880’s, who kept them in place practically uninterrupted until 1905. Sarmiento, Avellaneda, Roca, Juárez Celman, Pellegrini, Sáenz Peña, Uirburu, Roca again, and Quintana accumulated tax resources through this mechanism, so rejected today by the rural constituents who consider themselves heirs of various of these leaders.

At one point in time, withholding tariffs on exports were even considered a blessing for rural Argentineans. This happened in September of 1955, after the coup d’etat against the Perón government, when it returned to rule in place of the hated (by the landowners) Argentine Institute for Trade Promotion (IAPI). That key Peronist organization retained the currency from exports and turned over the percentage that it considered appropriate to the farmers in order to maintain its activities and achieve reasonable earnings. A significant portion of the agrarian rent absorbed by the state in this way was re-distributed to the manufacturing sector, which received subsidized credits for its development through the Industrial Credit Bank.

The IAPI was dissolved after the coup, putting an end to the transfer of resources from the rural to the industrial sector, but the government of General Lonardi also had to resort to withholdings in order to improve treasury accounts. At the same time, it was imperative that the tax be re-established in order to avoid runaway inflation in internal prices for food, which had caused a violent currency devaluation. Both reasons motivated the return of the tariff to the scene after the fall of convertibility.

There’s another common reference point between the experience of 1955 and that of 2002. At that time there was also one exchange regime that operated with fixed and selective exchange rates, and another on the free and floating market. The plan was devised by the economist Raúl Prebisch, with the advice of two people considered irreproachable by the rural leadership: Alvaro Alsogaray and Adalbert Krieger Vasena, according to recollections shared with Pagina 12 by the historian Norberto Galasso. The irreconcilable difference between what happened in ’55 and ’02 was the farmers’ reaction in one case and then the other, accepting the provisions of the Revolucíon Libertadora (Liberating Revolution) and repudiating those ordered by Duhalde-Kirchner.

The history of withholdings on exports appears related in the research of the economists Jorge Gaggero and Federico Grasso for the Center of Economy and Finance for Argentina’s Development (Cefid-Ar). The document reveals that different countries, and Argentina in various historical periods, applied this tax. Brazil, Costa Rica, Bolivia, China, Indonesia and Thailannd are mentioned along with various African nations such as Gabon, Ghana and Mozambique.

In [Argentina], the initial experience from 1862 to 1905 (with a circumstantial interruption between 1888 and 1890) is relevant because the use of the tax was validated, although its fiscal impact was reduced. In those years, the basis of the tax structure were import duties. The exports of the farming/ranching complex did not have the significance they acquired years later.

In 1918, the Yrigoyen government resorted again to withholdings on exports. They remained in place until 1925, when Alvear agreed to discontinue them on the advice of his Finance Minister, Víctor Molina. It was a triumph for the ranchers who from then on began to feel as though the tariff was an unbearable burden. Six years later, in 1931, with Yrigoyen defeated, the same landowning oligarchy lobbied to create the National Meat and Grains Board. At that time there were no complaints about state intervention, such as those now put forth by the ruralists, rather they called for something specific: giving rural producers a higher price than international [producers] for their exports.

The last major precedent for withholdings also corresponds to a major referent for liberal thought: Krieger Vasena put them in place in March of 1967, again after a devaluation, in order to avoid pricing disparity and above all, improve the budget. Onganía, who’d defeated Illia, backed this plan. Gaggero recalled that the withholdings were set at 40 percent, the entire gap in devaluation. The figure, the economist reflected, seems “wild” compared to the present level, but only now do the ruralists appear so shocked.

In addition to avoiding runaway internal prices following those of export pricing, the increase in tax revenues generated by the withholdings would keep the dollar above 3 pesos, which would benefit production. On the other hand, the tax protects the farmers who depend on cereals as an input: poultry, pork and beef. None of these reasons and not even history seem to affect the ruralists, who rejoice at the fall of the tariff as though it were a question of principles.

Machetera is a member of Tlaxcala, the network of translators for linguistic diversity. This translation may be reprinted as long as the content remains unaltered, and the source, author, and translator are cited.

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