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Argentine farmers raise concerns over linking sovereign bonds to food exports

19 June 2020

Argentina’s farmers have objected to a government proposal that ties the interest rate of bonds issued in the country’s debt restructuring to its agricultural exports.

According to reporting in Reuters, the proposal was included in the government’s most recent offer to sovereign bond holders as an incentive to get a deal finalised.

The warrants would trigger payments whenever farm exports reached a specific threshold. Reuters reports that the proposal didn’t win over Argentina’s bondholders. On 17 June, the government called time out on the restructuring talks to regroup.

“The creditors saw the warrants as a perk but not as a bargaining tool strong enough to bridge the gap,” said a source familiar with the discussions, who asked not to be named.

Growers, for their part, worry that the warrants would be an incentive for the government to keep export taxes unchanged at current levels of 33 percent for soybeans and soy-based products, and 12 percent for corn and wheat. Argentina is a major international supplier of all three crops.

“The use of export tax warrants by a government that regulates exports and export taxes sounds fishy,” said David Hughes, a grower in the bread-basket province of Buenos Aires.

Argentina’s main farm groups sent a letter to the government saying its members were “alarmed” at the idea of tying bond interest rates to exports.

“Such a financial instrument would generate negative incentives for agricultural production,” the letter said.

“It would mean that export taxes would not be lowered until the bonds mature ... compromising our capacity to generate employment, investment and economic reactivation,” it said.

Argentina’s economy has already been impacted by its COVID-19 lockdown, which began on 20 March. Economists expect Argentina’s economy to shrink by nearly 9.5 percent this year.

Read more about this story here.



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