Argentina's Garden of Forking Statistics

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By James Gibney

Argentine president Cristina Fernandez de Kirchner's attempt to use dodgy statistics to create a parallel economic universe won't ever compare to the stories of  Jorge Luis Borges, Argentina's foremost magical realist. And yet as the gap grows between Argentina's official inflation rate and the one calculated by private economists, one has to give her points for trying.  Today marks the deadline set by Christine Lagarde, the head of the International Monetary Fund, for Argentina to explain how it will fix its number-fiddling. Don't hold your breath.

Argentina's numbers trouble began in 2007, when Fernandez's predecessor (and husband) Nestor Kirchner purged Argentina's statistics institute, known as Indec, in what he called an effort to "improve operations." Later, the government began fining researchers for what it said was inaccurate reporting of inflation data. There are even allegations that it has pressured McDonalds outlets in Argentina to under-price Big Macs, lest the country's high inflation rate show up in the Economist's "Big Mac Index."

Since 2007, Argentina has reported average inflation of 8.8 percent a year, versus a 23 percent estimate by economists. According to Bloomberg reporting, the gap between the two rates widened to 14.4 percentage points in November, from 12.9 percent in January. By the unofficial estimates, Argentina now has the second-highest inflation rate of 103 economies tracked by Bloomberg. (Belarus, another country where statistical truth is many-splendored, ranks first.)

In a country with a historical fear of hyperinflation, an artificially lower official rate may or may not help to manage public perceptions; more concretely, however, the government has used it to moderate union wage demands and, since 2007, to shave $6.8 billion off what it would have otherwise had to pay on peso-denominated bonds, which pay more in principal and interest as prices rise.

In the short term, a Cristina vs. Christine  smackdown will feed the former's narrative of a courageous upstart daring to stand up to neoliberal bullying. But the Argentine public is showing signs of Fernandez fatigue: Her popularity has dropped by half since her re-election a year ago, and last month two million Argentinians took to the streets to protest inflation, crime and a possible Fernandez re-election bid (which would require constitutional surgery to move forward). It's a sign of political desperation that her party recently pushed through a measure allowing 16-year-olds to vote.

At a subsequent board meeting following Lagarde's report on Argentina's response, the IMF will decide whether to expel the country for its statistical sins, a step that would probably also lead to its exit from the G-20, and certainly to greater financial isolation. In stories such as "The Garden of Forking Paths," Borges layered worlds upon worlds, with multiple meanings and dimensions of time and space implying almost an infinity of outcomes. National accounts, though, aren't like that. For all of Fernandez's machinations, sooner or later the realities of the market will re-assert themselves, much to her disfavor.

(James Gibney is a member of the Bloomberg View editorial board. Follow him on Twitter.)

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-0- Dec/17/2012 20:42 GMT