Argentina

Argentina Is First Nation Censured by IMF for Economic Data

Bloomberg,

3 February, 2013

Argentina became the first country to be censured by the International Monetary Fund for not providing accurate data on inflation and economic growth under a procedure that can end in expulsion.

The declaration of censure was adopted yesterday by the IMF’s 24-member board, the Washington-based fund said in a statement. While it doesn’t have immediate effects, the decision takes the country a step closer to sanctions that include being barred from access to IMF loans.

The IMF’s executive board found that Argentina’s progress in implementing so-called remedial measures “has not been sufficient,” according to the statement. The board called on Argentina to “address the inaccuracy” of economic data no later than Sept. 29. Managing Director Christine Lagarde is required to report to the board on Argentina’s progress by Nov. 13.

President Cristina Fernandez de Kirchner said in 2010 the country would create a new consumer price index to reflect the latest consumption habits. Since then, the government hasn’t shown any progress in the new index. Lagarde said in September that the lender may give the country a “yellow card” for failing to improve its reports.

Debt Default

The fund’s censure is baseless and represents a “new mistake,” the country’s economy ministry said yesterday in a statement published on the government’s website. Argentina will start using a new CPI index by the fourth quarter of this year after conducting a survey on consumption since March 2012, according to the statement.

“Argentina doesn’t seem to have this as a priority in its agenda,” said Miguel Kiguel, a former finance under-secretary who now runs Econviews in Buenos Aires.

The U.S. Treasury voiced support for the IMF’s decision and urged “Argentina to work closely with the IMF in the months ahead to rectify these matters,” according to an e-mailed statement from Treasury spokeswoman Holly Shulman.

Argentina has been blocked from borrowing from international markets since its 2001 default on $95 billion of debt. South America’s second-biggest economy needs new investments to finance increased oil production by YPF SA, the country’s largest oil company that Fernandez nationalized last year from Spain’s Repsol SA.

IMF Censure

The extra yield investors demand to hold Argentine government dollar debt instead of Treasuries narrowed 44 basis points to 1,058 basis points at 5:17 p.m. in New York, according to JPMorgan Chase & Co.

Argentina’s $37.6 billion of inflation-linked bonds, which account for 21 percent of government debt, have lost 19.1 percent in the past 12 months, the most in Latin America, according to Barclays Plc. Similar Brazilian bonds gained 11.5 percent in the same period, while Mexican inflation-linked bonds rose 17.2 percent.

The IMF censure followed several attempts to obtain information from Argentina that the fund deems is good enough to monitor the country’s economic performance. Fernandez has denied the official statistics are inaccurate, even though they have been disputed by the IMF, economists and politicians since 2007.

Further Sanctions

In early 2007, Fernandez’s late husband and then-President Nestor Kirchner replaced senior staff at the statistics institute, known as Indec. While private forecasters estimate that inflation accelerated in 2012 to 25.6 percent, the government’s national statistics institute said consumer prices rose 10.8 percent.

The private economists aren’t identified because they risk being fined by the government for releasing calculations that differ from official data.

The gap between the official and private inflation rates has enabled the country to save about $6.8 billion since 2007, according to Buenos Aires-based research firm ACM Consultores.

The IMF may take further sanctions, such as declaring the country ineligible to use the fund’s general resources and suspending its voting rights. “Compulsory withdrawal” is the last step of the procedure, which leaves time between each decision for the country to address concerns.

According to the fund, Czechoslovakia is the only country ever ousted from the IMF for breaching the same rule, while Cuba withdrew in 1964. The procedure that has censure as a prior step didn’t exist then.

Numbers racket in Argentina

What is the country's actual inflation rate? That can be a dangerous question to ask these days.

LA Times,

30 January, 2013

In 2007, the government of Argentina fired Graciela Bevacqua and other statisticians who were collecting its price statistics and inflation estimates. Since that time, large and disturbing — even shocking — discrepancies have developed between the official inflation estimates (roughly 10% a year) and privately generated estimates announced by Bevacqua and others (roughly 25% a year).

Why would the Argentine government take such drastic action?

In late 2001, Argentina defaulted on its bonds, and it has refused to negotiate with its creditors. This has cut off the third-largest economy in Latin America from the international capital markets. To finance itself, the government has taken to seizing or nationalizing assets (national pension funds, reserves of the Central Bank, the Spanish oil company YPF) and printing money so the banks can buy the government's bonds. Because of a history of hyperinflation (and roller-coaster boom and bust), inflation is a sensitive domestic matter. In 2012, the economy slowed, and recent large demonstrations in Buenos Aires against inflation suggest that the Argentine people do not believe their government's inflation numbers.

On top of all that, Argentina has sold bonds whose value is tied to the rate of inflation. If it underestimates inflation, it owes less.

Rather than publishing and defending its methodology for measuring inflation, the Argentine government has chosen to attack the messengers. It has instituted serious administrative fines and criminal charges against Bevacqua and others. The official explanation is that the government was responding to wholesale fruit and vegetable vendors claiming that their sales had decreased, a decline in demand the government said was caused by publication of the private inflation estimates.

It is hard to understand how a change in the demand for fruits and vegetables could result in a charge against the statisticians. While the idea that announcements by private statisticians can move markets is flattering, it is much more likely that the actual increase in the prices of produce, reflected in the inflation rate, led to the decrease in demand.

The fines imposed on the statisticians are substantial, on the order of $100,000 to $150,000. They have yet to be adjudicated by a court. The criminal charges are even more serious. They are based on the proposition that announcing private inflation estimates endangered Argentine national security.

One trial based on this theory of liability, against Bevacqua and economist Nicolas Salvatore, resulted in an acquittal. It is not known whether that decision will be appealed. More criminal charges are pending.

The Argentine government has also instituted actions to destroy or intimidate the local media that might report on its actions. For example, the media giant Grupo Clarin has been threatened with the loss of its television licenses, reportedly because it has criticized government policies.

The government's apparent violations of the rights to freedom of speech and press could violate international treaties that are incorporated into its constitution.

More striking than the actions' potential illegality, however, is their sheer stupidity. Even given the government's inflationary economic policies, it could have ignored the private estimates, or it could have debated them on the merits.

Instead, by making martyrs of Bevacqua and her colleagues, Argentina draws attention to its intellectual bankruptcy. Combined with the financial bankruptcy that is sure to follow from its economic policies, there will be many more victims before this sad affair ends.

Joseph B. Kadane is an emeritus professor of statistics and social sciences at Carnegie Mellon University and chairman of the American Statistical Assn.'s Committee on Scientific Freedom and Human Rights.