An Argentine Mess

The decision of Argentina’s president Cristina Fernández to raise the export taxes on grain producers has sparked protests all over the country, putting the country once again in international headlines. But punishing exporters is not the main story, it’s the economic mess that the last two administrations have created in that beautiful country.

The previous government of Nestor Kirchner–Fernandez’s husband–thought that he could devalue his way out of the crisis of 2001. Since that year, the Central Bank of Argentina has consistently applied a weak peso policy, which along with a massive increase in public spending, has resulted in runaway inflation. Last year, the Argentine peso was the only Latin American currency that didn’t appreciate against the U.S. dollar; in fact it depreciated slightly. The weak peso thus served as a subsidy to exporters, including the farmers now protesting the tax hike.

So we actually have the Argentine government subsidizing and confiscating agricultural exporters at the same time, while creating inflation (which has led to price controls, bans on exports, and other economic beauties). And now, in response to the protests, the Fernández administration has announced new subsidies to farmers.

Only in Argentina.