More than four years have passed since Cristina Fernández de Kirchner and her late husband and predecessor as president, Nestor Kirchner, were attacked by the media for doctoring official data, in particular inflation, and jettisoning the independence of Indec, the national statistics agency.
In the latest chapter of this seemingly never-ending saga, the Argentine government is now ratcheting up the pressure on private economists and their consultancies for reporting inflation as much higher than the government claims. The official inflation index tracked at 10% in February; most third-party estimates are tracking annual inflation at 20–30%.
In February, Guillermo Moreno, secretary of state for commerce, sent letters to more than half a dozen local economic consultancies, giving them 48 hours to explain their methodology for determining their price indexes or face fines. Those that responded had their answers reviewed by Indec – the very organization at the centre of the controversy. At least one was fined and others were threatened with fines for supposed lack of rigour.
Emerging Markets reviewed several of the letters. In them the government cites the Lealtad Comercial law, a kind of truth in advertising statute, and claims that the consultancies are in violation of it by selling false information and misleading consumers. In one letter, the government contends that the statute “prohibits the realization of any type of presentation, publicity, or propaganda that contains inexactitudes”, and that the firm’s supposed errors “could induce errors, trickery, and confusion among both consumers and merchants with respect to prices”.
The government’s targets include the Buenos Aires consultancy Abeceb, FIEL, the Foundation of Latin American Investigations, and Graciela Bevacqua, who formerly directed Indec’s Consumer Price Index. Bevacqua says she was dismissed in 2007 for not complying with government orders to manipulate data. She now maintains her own consumer price index.
THE NOVENTISTA COUNTERATTACK
The authorities’ broadside is an attempt to frame the inflation controversy through an ideological lens: the government’s economic model, such as it is, versus neoliberal private economists, some of whom supported policies that contributed to bankrupting the country at the end of the 1990s.
It’s a political strategy that has served Fernández de Kirchner well in the past. Opponents or critics are painted in broad strokes as noventistas, literally 90s people. But this time, on this issue of inflation, there is one major problem with Fernández de Kirchner’s approach: Indec is being questioned by much more than a handful of private economists.
Critics include officials within the government, pro-Kirchner legislators, supporters, one of the government’s official pollsters, a human rights group, labour unions, including the one closest to the government, and also an academic commission of five public universities that Fernández de Kirchner herself commissioned in 2009 to resolve the Indec controversy.
As the government continues to look for scapegoats, it is becoming isolated on this issue.
The letters from Moreno’s office have now reached more than half a dozen consultancies. The economists are facing a “damned-if-you-do, damned-if-you-don’t” predicament. They are being threatened with fines if they do not respond and fines if they do. Orlando Ferrera, director of economic consultancy Orlando Ferrera, for example, chose to respond but was fined approximately A$500,000 for improper methodology based on an Indec analysis. So was Bevacqua.
Moreover, it is unclear if the government has any legal justification for what it is doing – or how it can enforce the fines.
Juan Luis Bour, chief economist at FIEL, tells Emerging Markets that, “the situation is quite risky for all of us doing this kind of work.” None of the firms intend to pay the fines for now, but Luis Bour fears that the government will find a way to enforce them.
They can continue to impose fines until the directors of the respective firms start to question whether the study of inflation is worth the costs. At that point they may decide “forget the index,” says Luis Bour. He adds that, “this is going to happen to most firms,” arguing that the government’s goal is to keep consultancies from reporting their information either through sanctions or intimidation.
Luis Bour appears to have been prophetic. On March 17, the firm Economias and Regiones announced in a statement that it will stop publishing its inflation statistics, citing “unjust persecution”.
The government accuses these consultancies of profiting from having their own price indexes and intentionally sowing confusion among the public.
But the indexes are costly to maintain. FIEL, albeit 40 years old, only started producing an index in 2008. And many of the consultancies that received letters do not have price indexes but measure inflation based on macroeconomic analyses. Abeceb is one such example. Its director, Dante Sica, says: “It’s not our fault that there’s inflation.”
He says that although many consultancies have long estimated inflation, up until 2007 when the government started dismantling Indec, nobody paid a consultancy for a price index or inflation estimate. “It wasn’t necessary since everyone had confidence in official figures.”
Financial newswires have also had to make adjustments. One journalist tells Emerging Markets that once Indec’s data was called into question, previously routine interviews with local economic consultants shifted focus from forecasting government statistics to questioning the official data itself.
SALARY HIKES
Even parts of Fernández de Kirchner’s government don’t seem to trust the official statistics. In February, the education ministry, for example, agreed to salary raises of 30% for teachers – well above the official inflation rate in February of 10%. Government expenditures generally have increased by more than 30% for each of the past five years.
According to Bevacqua, the ministry of labour and social development uses her data – as do two trade unions, SMATA and ADEPA. Argentina’s main labour confederation, the CGT, is allied to the government but does its own supermarket inventory. The various unions that comprise it have negotiated annual salary raises between 20% and 30%.
GOVERNMENT’S OWN FOLKS
Agustin Rossi, the head of Fernández de Kirchner’s block of legislators in Congress (the largest block), in 2008 said that, “We have to inject a dose of credibility into Indec.”
Rossi even floated a proposal in Congress to create a new statistics agency but was rebuked by Fernández de Kirchner’s chief of staff for his comments. He has since kept his criticism to himself and is now a ruling party candidate for the position of governor of Santa Fe, one of Argentina’s most important provinces.
Even one of the government’s official pollsters Artemio López says that “there is unanimous opinion” that the statistics agency is flawed. “I don’t pay attention to Indec’s figures,” he says.
The Indec controversy began in 2006. Bevacqua says that when she would not go along with the government’s request to manipulate data, she came under intense pressure from senior administration officials. One official justified the intervention saying the goal was to short-change international bondholders whose bonds were indexed to inflation, Bevacqua says.
Miguel Kiguel, an Argentine economist and former finance secretary, reckons that Argentina’s overall debt has dropped by $22 billion and it has saved $800 million on interest payments because of the intervention in Indec’s work.
Yet today, this logic no longer holds. Kiguel says that, perversely, because the majority of Argentine debt is now held by the country’s state-run pension system, the people getting short-changed are the Argentines themselves.
PROMISES, PROMISES
Bevacqua believes the main motivation behind the manipulation of official data was the presidential election in 2007, when inflation had begun to rear its head and became a concern for voters. In that race, then president Nestor Kirchner would trade positions with his spouse. Bevacqua says the intervention is just something the
Kirchners did without thinking about the long-term consequences, and it “just got out of their hands”.
In reporting this story, Emerging Markets made multiple requests for interviews or comments from the Argentine Presidency, the ministry of economy, Indec, the central bank, and the ministry of the interior. All declined to respond.
On occasion, the government has claimed it would resolve the Indec controversy. During the 2007 presidential campaign, Fernández de Kirchner promised to address the issue and made strengthening Argentina’s weak institutions a pillar of her campaign. It was a promise she quickly abandoned.
And in July 2009, the Argentine president signed a decree (which in Argentina immediately becomes law) creating a commission consisting of five public universities that would study Indec and report back their conclusions and recommendations to her.
Amado Boudou, the economy minister, said at the time, “The commission will start functioning next week, and that will begin this new effort looking at strengthening Indec. I am very committed to this effort ... and soon it will bear results.” Perhaps ironically now with hindsight, he said the creation of the commission “implies a revision with all the consequences which that can have”.
So now almost two years later, what became of the commission?
The commission’s report was in fact finished last July. But it took the group more than three months just to get a meeting with Boudou to hand it to him. And more than eight months after being completed, the government still has not published it. The decree says that the report should be presented to Congress, though as yet this appears not to have happened.
Ana Edwin, the head of Indec, recently told an Argentine radio station, when asked about the report, “What is this report you are referring to? I have not read it.”
These delays – in stark contrast to how quickly Moreno sent the deadlines to the economic consultancies – may have something to do with the report’s conclusions.
Four of the five universities in the commission have not published their findings – as public bodies, they depend on state funding and are afraid of government retribution.
The University of Buenos Aires (UBA), which has more autonomy, was the one university that decided to publish its report online. It concluded that, “it is not possible to consider the consumer price index (CPI) measured by Indec as a trustworthy measure of consumer prices, nor is it an appropriate indicator to be used to estimate other variables such as the real exchange rate, real salaries, or levels of poverty.
“The arguments presented to us by Indec do not take away the doubts about the quality of the index nor do they modify the perception that there are problems in estimating prices in the CPI series.” The report destroys any government notion that private economists are to blame for inflation. It finds numerous internal inconsistencies within official data.
For example, it compares the national government’s CPI with that used by the provinces Córdoba, Santa Fe and San Luis and does a regression analysis. It compares two time periods, first leading up to late 2006 and second from December 2006 to February 2010. It finds a divergence between national statistics and the provinces in the second period “of an order of magnitude that is difficult to attribute to methodological differences or differences in products evaluated”.
The R2 coefficient, a statistic which provides a measure of how well future outcomes are likely to be predicted by a model, dropped from 0.67 in the first period to 0.35 in the second, suggesting a drastic variation.
The report also compared Indec’s CPI with its IPI, a measure of private consumption. Though imperfect, from 1993 until the beginning of 2007, there was a correlation – they were within two standard deviations of each other. From the first semester 2008, there was a 4.5 average difference in standard deviation.
The authors also compared the IPC to another Indec measure, its IS, or Index of Salaries. It found from March 2007 to April 2010 a cumulative increase in nominal salary of 80% but a cumulative increase of the CPI of 28%. They wrote that the salary increase is difficult to explain without any substantial increase in worker productivity.
In the end, the authors wrote that, “all over the world people discuss questions of statistical methodology and design and interpretation. The magnitude of discrepancies seen in Argentina’s official statistics enormously exceeds any debate about methodology ... beyond the need to contribute to conceptual discussions (about design, methodology, etc), it is essential to recognize that in the case of Indec, the problem is fundamentally of an institutional nature.”
The UBA authors, however, appear reluctant to discuss their report. Victor Beker, a professor of economics at UBA and former Indec director, though not directly involved in the report, did review it as it was drafted and was privy to conversations with the authors. He tells Emerging Markets that the faculty at UBA “has a lot of fear due to pressure from the government”.
He says his colleagues “had a very bad experience” participating in the commission and that many of them “regret having agreed to join”.
ALL CHANGE?
The government has created a situation that each day becomes more difficult to rectify. Any admission of wrong-doing, even inadvertently, would open the floodgates to lawsuits, from bondholders to NGOs.
The Fernández de Kirchner administration says it is discussing with the IMF a way to develop a new national consumer price index. Boudou has also mentioned this. But neither he, nor the president, has much credibility on this issue, given their past failure to keep promises.
Many economists believe that talk of this is simply the government’s way of buying more time and passing the buck. However, Artemio López, one of the government’s pollsters, does believe the administration will make changes to Indec working together with the IMF – but only after this year’s presidential elections.
Yet the problems are much deeper than simply inflation. As the UBA report indicated, numerous government statistics are now unreliable. Poverty, for example, is under-reported, according to López.
The human rights group Cels (Center for Legal and Social Studies) together with numerous universities denounced Indec in 2008 for failing to make public socioeconomic data it once used to do. It said that it needed this data to measure poverty, indigence, labour statistics and other social measures properly.
Gaston Chillier, Cels executive director, tells Emerging Markets that the purpose of forming the consortium was “to depoliticize the subject of Indec”.
Chillier says that Indec started to make some of the data available at the end of 2009 but it is still quite incomplete, and he has not ruled out taking them to court. Chillier is hardly a stalwart defender of Argentine private economists or neoliberalism. And he says that Indec was not exactly “marvellous” before 2007 as “it had its problems”. But at least it functioned and published the data that Cels and others needed. He describes what has happened today as “the intervention and destruction of Indec”.