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Argentina Firing of Inflation Expert Signaled Start of Dubious Price Data

The night before Graciela Bevacqua finished a report projecting the biggest monthly increase for Argentina’s consumer prices in more than four years, she told her three children she might quit her job as director of the inflation index.

The next day, the decision was made for her. Bevacqua’s boss at the national statistics institute told her on Jan. 29, 2007, that she had to step down because then-President Nestor Kirchner “wanted my head,” the 51-year-old mathematician said in an interview with Bloomberg News. A week later, Argentina reported prices for January 2007 had risen 1.1 percent from the previous month, compared with Bevacqua’s estimate of 1.9 percent.

Bevacqua’s demotion -- she worked in two, lower-level, positions before finally quitting the government in January 2009 -- signaled the start of what former deputy economy ministers Orlando Ferreres and Jorge Todesca call the government’s “takeover” of the Buenos Aires-based institute. Kirchner wanted to show slower inflation before the 2007 presidential election and also damp union efforts to get higher pay, according to Ferreres.

“The government sought to cut union demand for wage increases, which start with the negotiations in January and February,” Ferreres said. “It was an electoral year, as it is now, and having a high inflation would fuel unions’ demands.”

Official data that reflect less than half the actual rate of inflation are leading investors to avoid South America’s second-biggest economy, said Alejandro Urbina, a debt manager at Silva Capital Management in Chicago.

‘Unique in the World’

“This is unique in the world,” said Urbina, who helps oversee $800 million in emerging-market securities. In other countries “if I buy inflation-linked bonds, I’ll get what I should.”

Government calculations that consumer prices rose 10.9 percent in 2010 compare with Bevacqua’s independent estimate of a 25 percent increase, which is similar to those of Buenos Aires-based economic-research companies Ecolatina, Finsoport and Orlando Ferreres y Asociados. The unofficial data put Argentina’s inflation rate at the world’s second-fastest last year, behind Venezuela’s 27 percent, among countries monitored by the International Monetary Fund.

The difference between official and private statistics since January 2007 means that returns on the government’s inflation-linked bonds, including interest and adjustment of principal, should have been 20.3 billion pesos ($5 billion) instead of 16.1 billion, said Maximiliano Castillo, a former manager of macroeconomic analysis at Argentina’s central bank who now runs ACM, a Buenos Aires economic-research company.

Falling Yields

Debt tied to Argentina’s official consumer price index has lost 13 percent this year, partly because of the inflation dispute, compared with an average return of 4.5 percent in Latin America. Yields on the Argentine notes reached a seven-month high of 10.05 percent on April 29. Argentine inflation bonds returned 57 percent last year, while similar Latin American notes rose 24 percent, according to Barclays Plc.

The current director of the statistics institute, Norberto Itzcovich, dismissed the private inflation estimates as “scribblings” that contained “embarrassing shortcomings” in an April 7 interview with newspaper Tiempo Argentino.

Bevacqua -- an engineer’s daughter from Rosario, a port town in the heart of Argentina’s farmlands -- said she first became aware of pressure to under-report price increases in May 2006, when she and her department head were summoned to the office of Interior Commerce Secretary Guillermo Moreno.

‘I Became Scared’

“When we entered the room, I became scared,” said Bevacqua, who had prepared the data for six years. “He had put on classical music, and I thought it was because he didn’t want people outside to hear what he was going to say. He said that if we didn’t aim for zero inflation, we were unpatriotic.”

Moreno and presidential spokesman Alfredo Scoccimarro didn’t respond to three e-mails and five phone calls to their offices asking for comment on changes at the statistics agency and Moreno’s meetings with Bevacqua.

At that first meeting, and in another attended by then- Economy Minister Felisa Miceli, Moreno belittled and made fun of her, as well as questioning the institute’s methodology, Bevacqua said. Miceli declined to comment when Bloomberg contacted her assistant by telephone.

During the first meeting, Moreno pulled a shirt from a pile of clothing next to his desk and waved it in the air, challenging Bevacqua to explain how its value was reflected in the index, she said. Her responses were treated with contempt, said Bevacqua, who has been a statistician specializing mainly in foreign trade and consumer spending since moving to Buenos Aires 30 years ago.

‘Permanently Harassed’

“We were permanently harassed” and “didn’t have time to do what we usually did,” she said of the months between May 2006 and her demotion, as her staff was barraged with requests for details on how they calculated the indexes.

Since she left the government, Bevacqua said she has been jobless, even though she’s applied for work at a number of companies. She’s continued to produce a consumer price index, with the help of economics students from the University of Buenos Aires, which she distributes free, receiving no remuneration for her work. She said she also has provided advice on statistics to private and public institutes in Argentina and abroad, though she declined to provide further details.

“My accounts are in the red,” she said of her financial situation, adding that she’s had to give up movies, dinners out and her gym membership. A keen hockey player from age 12 to 19, she now runs to keep fit. Her experience also has affected her morale, causing her family to worry about her health, said Bevacqua, adding that she avoids going near her old office “because I get too upset.”

‘Improve Operations’

Kirchner, who died from a heart attack in October, defended the personnel changes at the institute, saying in a Feb. 6, 2007, speech that they were intended “to improve operations.” Since the changes, economists and politicians including Vice President Julio Cobos and Kirchner’s former Economy Minister Roberto Lavagna have called for the need to restore confidence in Argentina’s data.

“The initial goal was to get into the 2007 presidential elections without acknowledging the actual inflation rates,” Victor Beker, former director of economic statistics at the institute from 1984 to 1987, said in a telephone interview. “From that point forward, reporting the real inflation would have shown that the official statistics had been previously manipulated.”

Higher Salaries

Rising prices have been fueled by escalating public spending, official policies encouraging higher salaries and consumer demand, and a surge in money supply as the central bank purchases dollars flowing into the country from record farm exports.

Government policies, including the inflation dispute, have deterred foreign investment in Argentina. Even though economic growth averaged 5.6 percent per year from 2008 through last year, investment totaled $2.2 billion in the first half of 2010, compared with $17.1 billion in Brazil, $8 billion in Chile and $3.4 billion in Peru, according to the Santiago-based United Nations Economic Commission for Latin America.

Last year, President Cristina Fernandez de Kirchner sought IMF help in creating a new national consumer price index to reflect regional differences in consumption habits; it eventually will replace the current inflation report, said Economy Minister Amado Boudou. Last month, a mission from the Washington-based lender met with officials from four provincial statistics agencies, leaving a report with “specific recommendations on the design and methodology for developing a new national CPI,” said Carlos Medeiros, an adviser in the IMF’s Western Hemisphere department.

‘Playing for Time’

“The government is playing for time and wants to be seen to be trying to fix things in order to stem the scandal,” said Marcela Almeida, 41, who worked for Bevacqua as coordinator of inflation data. She also was demoted and is suing the institute.

Even as a private citizen, Bevacqua still is subject to action from the authorities. In March, she was among a group of private researchers who were fined 500,000 pesos each for producing statistics the government said didn’t comply with “appropriate methodological requirements.”

As a result of pressure from the government, Economia y Regiones SA, an economic-research company led by former Economy Ministry official Rogelio Frigerio, said it no longer publishes its estimates.

“As long as the unjust persecution we suffer, violating our freedom of speech, doesn’t stop, Economia y Regiones will stop making public the reports on prices,” the Buenos Aires- based company said in a March 16 e-mailed statement. A few days later, the government still levied a 500,000-peso fine.

Professional Independence

“A statistics agency must be professionally independent,” Pali Lehohla, the head of South Africa’s statistics agency and statistics chairman for the United Nations’ Economic Commission for Africa, said in an April 20 interview from Johannesburg.

He cited the Bevacqua case at a UN seminar in February on “Threats and Responses” to the agencies. The difference in credibility between the Argentine government’s current reports and those under Bevacqua “affirms the work she was doing,” Lehohla said.

Bevacqua says she will continue to publish her own inflation data, even though her stance means that if she loses her appeal against the 500,000-peso fine, she may have to sell her two-bedroom apartment in Buenos Aires’s Palermo neighborhood.

“The only thing I don’t want to lose is my prestige and credibility,” she said. “If I stop now it would be like admitting that they are right and my fight over the past four years has been in vain.”

To contact the reporter on this story: Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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