Argentina flees to the dollar

Washington Post:

Today's Argentina is not gripped by crisis. It's gripped by the fear of crisis.

Several strikes by farmers, furious over government policies, have sparked concerns about lasting damage to the economy. Many Argentines have been exchanging their pesos for dollars, forcing the government to dip into its surplus to keep the currency stable. Consumers, told that their government faces a shortage of natural gas, are bracing for blackouts.

It's enough to fundamentally change the character of daily life for a lot of people here, from the swankiest boardrooms to the humblest street corners.

Driving through the streets of this city, taxi driver José Luis Baldini, 60, voices a bleak notion that has become conventional wisdom for many here: Good times never seem to last.

"Argentina is like a kid who makes a really good sand castle at the beach, takes a lot of care in building it just right, then steps on it himself," Baldini said. "Things have been good recently. Now we have to put a question mark on everything."

Argentines have seen much worse than what they're seeing today. In late 2001, the economy here collapsed, plunging millions into poverty. Many here also remember social turmoil that boiled over into military coups at least once each decade from the 1930s to the 1970s. Such memories are fueling the current anxieties, which now have many people asking whether this crisis of confidence could degenerate into the real thing.

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In March, Fernández de Kirchner levied a sharp tax increase on soybean and sunflower exports to generate more government income and help control inflation. The farmers protested angrily.

The issue now is about much more than simply taxing agricultural profits -- it's a symbolic battle over the general direction of the country. For the Kirchners and their allies, the tax is an emblem of their spread-the-wealth populist approach to governance, while their opponents view their reluctance to repeal the tax as a distillation of an increasingly authoritarian government. As the issue takes on more meaning, both sides seem less willing to bend.

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As recently as February, the government had been buying up vast quantities of dollars to keep the peso's value artificially low -- a strategy designed to boost exports and domestic investment. But after the farm conflict began, Argentines traded millions of pesos for dollars and forced the government to flip its strategy: It's now dipping into its $50 billion reserve fund to prop up the value of the peso.

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There is an obvious loss of confidence in the government and its policies. Confiscatory taxes rob people of incentives and award the unproductive. Kirchner's appearance at the UN conference of the food crisis is almost as ironic as Mugabe's since she is the persons responsible for Argentina's lack of agricultural exports. Her absurd export taxes have led to a farmers strike, which is leading to a general loss of confidence within the country.

The solution is so obvious that only a control freak leftist would miss it. Drop the export tax and encourage free trade. It will bring in more money to the country and strengthen its currency. Let the market distribute the income form the export business instead of the government. People who make money usually don't rat hole it. They invest it in future production or they buy things from others.