Economy Minister Sergio Massa on Wednesday announced the third incarnation of the ‘soy dollar’ policy, adding another temporary exchange rate to Argentina’s complicated web of currency controls.
Argentina's government will introduce a new plan to stimulate the liquidation of agricultural products at a higher exchange rate as part of a bid to bolster currency reserves amid "the worst drought in history," Massa said as he unveiled the Programa de Incremento Exportador (“Export Increase Programme”).
The minister said that his aim is to encourage exports, strengthen reserves and encourage regional economies. Internal government analysis estimates the seven-week window for the rate could bring in as much as US$5 billion in foreign currency, if the market reacts favourably.
The new exchange rate aimed at encouraging the liquidation of cereals and derivatives was set at 300 pesos to the dollar – an attractive but not exceptional option for agricultural producers at a time when the official exchange rate stands at 217 pesos per greenback but reaches up to 400 pesos on illegal parallel markets.
The government’s aim is to bolster the Central Bank's reserves fast. They’ve fallen by more than US$5.5 billion this year, from US$44.608 billion on 2 January to US$39.06 billion as of March 31.
Reserves are under constant pressure from relentless foreign exchange sales and dwindling export inflows, with the punishing drought strongly impacting the harvest.
The weakness of Argentina’s reserves, and the poor projections for harvesting, prompted President Alberto Fernández’s government to renegotiate the monetary targets outlined in its US$44.5-billion credit agreement with the International Monetary Fund (IMF) and request they be downgraded, a concession to which the multilateral lender agreed.
"The measures are intended to strengthen Argentina's agro-export sector, our reserves and our currency at a time of such uncertainty and volatility both globally and locally," Massa told a press conference as he announced the new measure.
The new incentives will last until May 31 for soybean items and until August 30 for the rest of the products concerned, which include a number of exportables from the so-called “regional economies,” such as wine goods.
"We have also incorporated the regional economies, which are the largest employers in Argentina, with more than 338,000 jobs," Massa stressed.
The export scheme will also establish automatic benefits in emergency situations for all producers in Argentina, in order to assist the almost 70,000 farms and firms affected by the drought.
The benefits to affected producers will include the suspension of tax payments during the emergency and assistance with access to credit markets.
"The campo is one of the great generators of foreign exchange and jobs in Argentina," declared Massa.
New but old
It is the third time since he took office in August last year that Massa has launched a so-called "soy dollar" (or “dólar soja”) as an incentive to the liquidations of the agro-export complex.
The novelty this time around that this latest stimulus will be called "dólar agro" as it covers other foods such as fruits, wines or juices, among dozens of crops and processed products. It has also been dubbed the “dólar malbec” because Massa first trailed the policy at a vineyard in Mendoza.
Exports of cereals and derivatives are projected to fall this year by between US$15 billion and US$20 billion, according to estimates from the Rosario Stock Exchange, the main export centre north of Buenos Aires. In the previous season, exports totalled US$43 billion.
"We are facing the worst drought in Argentina's history. More than 69,000 producers have been hit," Massa said.
News of the policy produced a mixed reaction from agricultural producers. The powerful Mesa de Enlace industry group issued a harsh statement, criticising the measure as a "new stopgap for the economy" that sought to "swell the Central Bank's rickety reserves."
Nicolás Pino, president of the Argentine Rural Society (SRA) said the negative effects of such policies had already been seen last year, words echoed by Coninagro President Elbio Laucirica, who said the approach "generates benefits in some sectors and harm in others."
From the exporting agro-industry, Gustavo Indígoras, the president of the CIARA-CEC chamber group, said that the measure was “recognition of the need to have a competitive and single exchange rate.”
“We would like it to be maintained permanently,” said the business leader, whose organisations represent 48 percent of Argentina’s total exports and participated in a meeting convened by Massa that coincided with the announcement.