BUENOS AIRES (Reuters) - As Argentina drafts plans to cut its budget deficit to convince nervous investors it can pay its debts, President Mauricio Macri is under increasing pressure to reverse one of his signature policies, cutting farm export taxes.

Treasury Minister Nicolas Dujovne promised to announce measures on Monday to reduce the South American country’s 2019 primary deficit - its borrowing needs before debt servicing - in an effort to stem the slide in the peso, one of the world’s worst performing currencies this year.

Argentina has already agreed to cut its primary deficit to 1.3 percent of gross domestic product (GDP) under a $50 billion International Monetary Fund program inked in June, prompting protests by unions. Now, Dujovne has pledged deeper deficit cuts before traveling to Washington to negotiate with the IMF for speeding up aid.

The return of export taxes plus a sharp reduction in the number of ministries were being discussed at crisis talks headed by Macri this weekend, local media reported.

The government has not detailed its new primary deficit target or what measures it expects to take to stabilize the currency after a whopping 16 percent depreciation last week, but investors want decisive action.

“The market will likely be expecting a 2019 budget that makes a credible attempt to all but eliminate the primary deficit,” said Jeffrey Lamoreaux, senior analyst at Fitch Solutions in New York.

He said markets expected Macri, who took office in December 2015 after 12 years of left-wing administrations, to implement a combination of agricultural export taxes and reductions in subsidies and social spending.

“The risk for Macri is that he alienates one of the few segments still behind him,” Lamoreaux said.

The agricultural lobby has been a pillar of support for Macri as he sought to boost the competitiveness of Latin America’s third largest economy. The powerful farm sector backed his business-friendly coalition in both the 2015 presidential elections and the 2017 mid-term legislative elections.

Argentina's President Mauricio Macri leaves afteer a news conference at the Olivos Presidential Residence in Buenos Aires, Argentina, July 18, 2018. REUTERS/Marcos Brindicci

A return of export taxes would mark a major reversal. Macri scrapped levies on corn and wheat shortly after taking office. He also began gradually lowering taxes on soy and soy products, which were at the heart of a dispute between former populist President Cristina Fernandez and the farm sector.

Talk of measures to tax Argentine corn and wheat exports supported prices of international grain futures on the Chicago Board of Trade on Friday, traders said. Argentina is the world’s No. 3 soy and corn exporter.

Nonetheless, two former economic officials in Macri’s government suggested export taxes would be an effective short-term option.

“I never believed in that measure as a permanent option but this is a fire,” Carlos Melconian, who served as chief of state-run Banco Nacion during the first year of Macri’s term, said in a television interview, referring to the run on the peso and growing concern about Argentina’s ability to pay its debts.

Luciano Cohan, the former undersecretary for macroeconomic programming under Macri, wrote on Twitter that a 5 percent export tax on all goods, not just agricultural products, would raise between $3.5 billion and $4 billion in revenue next year.

A spokesman for Argentina’s Agriculture Ministry said he did not have information on any plans for export taxes. A Treasury Ministry spokesman did not respond to a request for comment.

“BE PREPARED TO DELIVER SOMETHING”

Economists said a rise in export taxes would not overburden farmers, who are already earning more in peso terms following the currency’s depreciation because grain exports are denominated in dollars.

“The sectors that are going to win big with this devaluation should also be prepared to deliver something,” said Fernando Camusso, director of investment firm Rafaela Capital. “The bulk of the possibility to cut the deficit faster comes by way of export taxes.”

However, farm groups criticized the possibility. Daniel Pelegrina, president of the Argentine Rural Society, called them the “easy way out” and argued that the peso’s depreciation cuts both ways for farmers, who have to pay higher costs for imported inputs.

Fifty-nine percent of Argentine soybean producers’ input costs are fixed in dollars, according to a June report by CREA, a think tank focused on agriculture. The figure rises to 61 percent for corn input costs.

The administration has already faltered in its commitment to lowering soy taxes. After several senior officials insisted the government would not change course after the IMF deal, the Treasury Ministry last month froze planned cuts in export taxes for soy products.

An export tax would amount to a recognition that Macri’s initial plan to reduce the deficit through spending cuts alone was not enough. The administration has already accelerated cuts to meet a tougher primary deficit target of 2.7 percent of GDP this year, down from 3.2 percent previously.

Hundreds of layoffs at state-owned companies and government ministries have led to confrontations between protesters and police. Tens of thousands of university students and staff have marched demanding more government funding and higher salaries that have been eroded by inflation topping 31 percent annually.

For Axel Christensen, chief investment strategist for Latin America and Iberia at BlackRock, Macri’s government is following the right strategies, but he said many investors remain traumatized by memories of Argentina’s 2001-02 economic crisis, when the country defaulted on its debt and millions were plunged into poverty.

“Even if they are technically doing the right thing, there is an emotional connection to past episodes in Argentina,” he said.