Argentina Files Criminal Charges Over ‘False’ CPI Reporting

July 11 (Bloomberg) -- Argentina stepped up its pressure on economists who say the government has underestimated inflation in its official reports for more than four years by filing criminal charges against research company M&S Consultores SA.

Interior Commerce Secretary Guillermo Moreno filed charges against M&S on July 8, saying the company stood to profit by claiming prices in South America’s second-biggest economy are rising faster than the 9.7 percent annual rate reported by the national statistics institute. In February the government began fining economists 500,000 pesos ($121,000) for saying prices were rising as much as 25 percent per year.

“Inflation is the biggest vulnerability for the government and they are trying to sweep it under the rug but with this they are really sweeping it over the rug,” said Boris Segura, a Latin America strategist at Nomura Securities International in New York. “They are raising the profile on this issue. It’s a real political miscalculation.”

Two calls and an e-mail to M&S Consultores director Carlos Melconian weren’t immediately returned.

Analysts including former Economy Minister Roberto Lavagna say the government has underreported inflation since January 2007, when then-President Nestor Kirchner began changing personnel at the national statistics institute in a bid to “improve operations.” The government last year invited the International Monetary Fund to visit the country to help create a new inflation index.

‘False’ Reports

“The false information generated by the consultant, intended to benefit not only the company but agents in the financial market who are clients of the company with extraordinary profits, does damage to consumers and the state,” according to a statement on the government’s website. “If M&S was successful in convincing the community of the veracity of its inflation, we would have an annual adjustment of between 12 percent and 23 percent over current values.”

“There is no foundation for these charges,” Mariano Lamothe, chief economist at Buenos Aires-based research company Abeceb.com, said in an interview yesterday. “It’s an attempt to silence the voices who since 2007 have said the government’s reports are false. It’s another way to threaten economists.”

Tumbling Debt

Argentina’s inflation-linked bonds have fallen 11.7 percent this year as the government fined economists and failed to react to the recommendations made by the IMF in its report, which wasn’t made public. Similar Brazilian debt has returned 3.5 percent this year.

Argentina’s inflation debt rallied 57 percent last year on optimism the government would improve its reports after Fernandez asked the IMF for help redesigning the price index. The government hasn’t said whether it will follow the recommendations the IMF made in April.

“I don’t think it’s going to change the people’s positioning a lot,” said Valentina Chen, a fund manager at Aviva Investors in London, which holds $2.5 billion in emerging-market bonds, including Argentine debt. “It’s Argentina, we’re pretty used to news like this.”

A group of congressmen released a report June 14 saying prices rose 23.5 percent from a year earlier, basing their data on the average estimates of eight analysts, all of whom face fines if they publish their findings.

Lawmaker Challenge

Patricia Bullrich, one of 16 lawmakers in the 257-member lower house to endorse the report, challenged Moreno at the time to fine lawmakers in the same manner as economists.

“Let’s see if Moreno fines us now, let him come fine us,” Bullrich said in an interview on Radio 10.

Graciela Bevacqua, who was fired in 2007 as head of the consumer price index division at the statistics agency, was assessed the maximum fine earlier this year. Other researchers that have been punished include Buenos Aires-based Abeceb.com, Finsoport and Estudio Bein & Asociados. Economia & Regiones SA, based in Buenos Aires, said March 16 it will stop releasing its monthly price index because of “unjust persecution.”

To contact the reporters on this story: Camila Russo in Buenos Aires at crusso15@bloomberg.net; Bill Faries in Buenos Aires at wfaries@bloomberg.net

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