Argentina drops tax hike on grain exports after senate defeat

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(AFP)

BUENOS AIRES (AFP) - Argentina said Friday it was dropping a controversial plan to raise taxes on its all-important grain exports, one day after the government was dealt a defeat on the measure in the senate.

Taxes on soya -- its main export -- and on corn, sunflower seeds and derivatives will remain at a fixed 35 percent, cabinet chief Alberto Fernandez said.

The government of President Cristina Kirchner had been seeking to hike them significantly using a floating scale depending on market prices that would have raised the tax on soya, for instance, to 48 percent.

The climbdown looked certain to calm tensions between the government and farmers after months of rural roadblocks and demonstrations.

But some farmers' groups said they would try to press their advantage.

"The government took the right reading of what the senate decided, but taxes on small- and medium-sized producers still need to be reduced," said Eduardo Buzzi, leader of the Farmers' Federation.

Hugo Biolcatti, one of the chiefs of the farmers' revolt, said: "Now we are going to concentrate on beef and milk, and regional economies."

The rural unrest had forced Kirchner to put the tax plan to congress for a vote. The lower chamber passed the measure, but on Thursday it stalled in a 36-36 tie in the senate.

The tie was broken only when Vice President Julio Cobos cast his deciding vote against the hike.

Cobos, who has since said he will not resign despite his surprising vote, declared: "I am not betraying the president, but I am voting with my heart and I can't vote in favor. History will judge me."

The defeat was the worst dealt to Kirchner, who took over the presidency last December from her husband Nestor Kirchner.

She is struggling to keep Argentina's frail recovery from a 2000 financial collapse on track amid very high inflation.

Fernandez said the government was looking to obtain "the fairest economic relations, and better revenue distribution in face of the world crisis over increased prices for food and oil."

He said Buenos Aires needed to stabilize domestic food prices while at the same time maintaining export volumes.

The current high prices for commodities -- particularly grain exports -- is fueling the country's economy, which has grown more than eight percent a year since the collapse.

Argentina's agricultural exports earn 35 billion dollars a year, of which soya accounts for 24 billion dollars.

Farmers had been withholding 28 million tons of the 46 million tons of soya harvested pending the outcome of their conflict with the government.

The South American nation is the biggest exporter of soya flour and oil in the world, and the third-biggest exporter of soya beans.

It is also the second-biggest corn exporter, and the fourth-biggest wheat exporter.