June 18, 2020 / 1:43 PM / 2 months ago

Argentine farmers object to linking sovereign bonds to food exports

BUENOS AIRES (Reuters) - Argentina farmers have objected to the government’s proposal to tie the interest rate of bonds issued in the country’s debt restructuring to the country’s agricultural exports.

The proposal was included in the government’s most recent offer to the holders of about $65 billion in sovereign bonds as a sweetener to get a deal done.

But the warrants, which would trigger payments whenever farm exports hit a certain threshold, were not enough to win over bondholders. The government on Wednesday called a time out to regroup in the final stretch of the restructuring talks.

“The creditors saw the warrants as a perk but not as a bargaining tool strong enough to bridge the gap,” said a source familial 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% for soybeans and soy-based products, and 12% 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, hit by a lockdown called on March 20 to curb the spread of the new coronavirus, is expected by economists to shrink by about 9.5% this year.

Reporting by Hugh Bronstein and Maximilian Heath; Editing by Bernadette Baum

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