In Parched Argentina, Worries Over Economy Grow

[Bianca]

Argentina’s worst drought in more than 50 years has been especially devastating to wheat
and corn crops and to cattle production.Cows are dying by the thousands in the baking sun,
and crops are being lost before their seeds even break the soil.
 
Cezaro De Luca
/European Pressphoto Agency









                                       In Parched Argentina, Worries Over Economy Grow






ALEXEI BARRIONUEVO
Associated Press
Published: February 20, 2009
BUENOS AIRES

Ranchers have lost an estimated 1.5 million head of cattle, an economist said. A farmer said he lost 106 cows in three hours.

Argentina’s worst drought in more than 50 years is magnifying the country’s chances of suffering another economic crisis, and the lost farming revenue will complicate the government’s efforts to meet more than $18 billion in debt obligations this year, economists said.

With congressional elections now only eight months away, the drought is also putting political heat on the country’s first couple, President Cristina Fernández de Kirchner and Néstor Kirchner, the former president. It comes as Argentina is struggling to contain double-digit inflation and growing unemployment.

Mrs. Kirchner late last month declared an “agricultural state of emergency” and said the government would give some farmers and ranchers a one-year reprieve on paying provincial taxes on produce and livestock that had been affected by the drought.

But a mood of opposition has gripped parts of the country, especially rural areas that helped usher Mrs. Kirchner into power in 2007. Still seething from last year’s battle over export taxes, farmers have been threatening to stage yet more strikes unless the Kirchner government rolls them back.

Mr. Kirchner, who last year called farmers “coup mongers,” has tried to calm tensions. “To those that insist on confrontation, we ask for humility,” he said this month.

After talks broke down between the government and farming associations, producers said on Friday that they would halt sales of grain and beef products until Tuesday.

As much as the Kirchners are trying to avoid it, the elections figure to be a national referendum on their waning popularity and their ambitions to remain in power after 2011.

While Mrs. Kirchner is the president, few doubt that Mr. Kirchner, who leads the Peronist party, is the couple’s chief political strategist and plays a strong role behind the scenes in guiding the economy.

Mr. Kirchner lately has been meeting with provincial governors and considering whether to run for Congress in the province of Buenos Aires to shore up the couple’s political power. He is seeking to negotiate alliances with Peronists who pose a competitive threat to the Kirchners, said E. Federico Thomsen, an economist who runs a consulting firm in Buenos Aires. But on Tuesday, Carlos Reutemann, a senator and former governor of Santa Fe Province, dealt a blow to that strategy when he announced he was leaving the government’s Victory Front bloc because of personal and political disagreements with the administration.

The Kirchners have been particularly stung by the drought — which has lasted five months and is also wreaking havoc in Uruguay, Paraguay and parts of southern Brazil — because Argentina’s economic situation was already more precarious than that of neighbors like Brazil and Chile.

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Not only does Argentina have high debts, but it also saved less of its profits during the recent commodities boom. That has given the government less flexibility to enact economic stimulus measures.

Still, the prices of food crops have not fallen as severely as those of commodities like oil and copper, which some other South American nations, including Venezuela and Chile, rely on for their economic growth.

“Argentina could have claimed to come out of the crisis relatively unscathed,” Mr. Thomsen said. “But here comes the drought to complicate things.”

Economists expect overall production in Argentina’s agriculture and livestock industry to fall by at least 15 percent this season compared with last year, and for state revenues from the industry to fall by more than $5.5 billion. The drought has been especially devastating to the wheat and corn crops and to cattle production.

Argentine ranchers have lost an estimated 1.5 million head of cattle, said Ernesto Ambrosetti, the chief economist at the Institute of Economic Studies at the Argentine Rural Society. Ricardo Theill, a dairy farmer in Ceres, in Santa Fe Province, told a radio station last week that he lost 106 cows in three hours when they abandoned their parched pasture, gorged on soybean plants and died from indigestion.

“It took five years of investment and work for these cows to enter into the dairy farm,” Mr. Theill said.

The United States Department of Agriculture last week dropped its estimate of Argentina’s corn crop to 13.5 million tons, down 35 percent from the department’s estimate last year.

Argentina’s most important export crop, soybeans, has thus far not been as badly affected because farmers were able to delay planting in some fields a little longer in the hope that enough moisture would finally seep into the soil. So far this month, there has been more rain on average than in January, and that is bolstering hopes.

A separate problem is that the country’s supply of dollars is falling as demands increase and capital flight continues, said Daniel Kerner, an analyst at Eurasia Group, a risk consulting firm. That could add pressure on the government to tap Central Bank reserves or to severely devalue its exchange rate. Last year, Argentines pulled out about $25 billion from the country, Mr. Kerner said.

Though most economists say they believe the government can squeak by and avoid another crippling default on its debts, sidestepping a major devaluation of the currency, the peso, will be a more delicate dance.

For now, the Kirchner government appears committed to gradually devaluing the peso to avoid stoking a widespread panic.

With the cash that the government seized from private pension funds and other instruments, it can shave down a $10 billion financing gap this year to a more manageable $2 billion, said Esteban Medrano, an economic adviser at LatinSource, a consulting firm.

He said a steep drop in production could be offset somewhat by millions of tons of grains that farmers stored last year when they were battling the government.




A version of this article appeared in print on February 21, 2009, on page A8 of the New York edition.