Cooking the Books in Buenos
Aires
By Jaime Daremblum
On September 26, the Latin
Business Chronicle reported [1] that Argentina would likely finish 2011 with the world’s second highest annual
inflation rate, behind only Belarus, home to Europe’s last
dictatorship [2]. Indeed, according to the Chronicle analysis,
yearly inflation will be worse in Argentina (27.5 percent) than in Venezuela
(25.8 percent), Iran (22.5 percent), Guinea (20.6 percent), Sudan (20 percent),
Kyrgyzstan (19.1 percent), and Yemen (19 percent).
Of course, you wouldn’t know
this from the Kirchner government’s “official” inflation data, which have
become a bad joke. Buenos Aires claims that inflation remains below 10 percent,
but the International Monetary Fund is no longer relying on such estimates.
“Until the quality of data reporting has improved,” the IMF states [3] in
its new World Economic Outlook, “IMF staff will also use alternative measures
of GDP growth and inflation for macroeconomic surveillance, including estimates
by: private analysts, which have shown growth that is, on average,
significantly lower than official GDP growth from 2008 onward; and provincial
statistical offices and private analysts, which have shown inflation
considerably higher than the official inflation rate from 2007 onward.”
President Cristina Kirchner
has a strong personal interest in cooking the books: She is up for reelection
on October 23, and her political strength rests on the perception that she has
presided over strong economic growth and rising living standards. If the
government were honest about inflation and poverty, Argentines would better
understand the deeply negative consequences of Kirchnerism, which is perhaps
best described as “Chávez-lite.” The South American country still has painful
memories of the hyperinflation that sparked violent riots in 1989 and then
again in late 2001 and early 2002. The latter riots preceded the biggest
sovereign default in recorded history.
Argentine politics is still
heavily colored by the country’s 2002 default. Kirchner and her left-wing
brethren have blamed the financial collapse on “neoliberal,” “free market,”
“Washington Consensus” reforms adopted during the 1990s. But that argument is
grossly misleading. “What killed Argentina’s economy in 2001 was not
‘neoliberalism’ or the free-market reforms, but a fiscal policy incompatible
with the exchange-rate regime, and a lack of policy flexibility,” Michael Reid
of The Economist has written [4].
“Contrary to many claims, Argentina’s policy mix was in direct contravention of
the Washington Consensus.”
Nevertheless, Kirchner
continues to insist that Washington Consensus policies have been “a tragedy [5]”
for Latin America, and she has embraced Chávez-style economic measures
(nationalizations, money grabs, profligate spending) that have chased away
investors, discouraged private enterprise, sullied Argentina’s global image,
and unleashed massive inflation. Thanks to a commodity windfall, Argentina has
enjoyed strong GDP growth, but it has also experienced significant capital flight [6] and banknote shortages [7].
Inflation has disproportionately hurt poor and lower-income Argentines,
reducing their purchasing power and squeezing their budgets.
Rather than seek to improve
price stability through policy changes, Kirchner and her allies have been
harassing and threatening media outlets that dare to question the government’s
(obviously bogus) inflation figures. On September 22, the campaign of
intimidation reached a new level, when Judge Alejandro Catania subpoenaed
several Argentine newspapers for the contact information of journalists who
have published or edited articles on economic issues over the past half-decade.
Judge Catania is also using his subpoena power to pursue the private
consultants who have been supplying legitimate inflation data to the IMF and
other institutions.
“After a signal like that,” writes [8] Council
on Foreign Relations scholar Walter Russell Mead, “stockholders should be able
to sue the management of any company which puts money into Argentina. It
is hard to think of measures which send a more unmistakable warning of
dishonesty and impending crisis. Nothing and no one can be safe in a
country where such things are done.”
Indeed, under Cristina
Kirchner and her late husband, Néstor, who preceded her as Argentine president
(serving from 2003 to 2007), the onetime “jewel of South America” has often
seemed like a banana republic. By doctoring its official economic data and
hounding journalists who report the truth, the government is showing a thuggish
contempt for the rule of law. “The numbers have more than political
consequences,” explains [9] AP
reporter Michael Warren. “Because much of Argentina’s debt is issued in
inflation-indexed bonds, the government saves billions on repayments to
bondholders if official inflation remains low. Most bondholders are now
Argentine taxpayers, since the government nationalized private pensions and
required the new system to invest in government debt.”
Speaking of debt and
bondholders, it’s been roughly a decade since Argentina’s financial collapse,
and the government is still refusing to accept a fair settlement with its
erstwhile creditors. It owes private creditors about $16 billion, and it owes
an additional $9 billion to Paris Club member nations. Understandably, the
United States is now attempting to block [10] Argentina
from receiving new development loans, hoping this will convince Kirchner to
reach equitable agreements with former bondholders and investors.
Comparisons between the
Argentine president and Hugo Chávez can be taken too far. The latter is a
raving demagogue who has destroyed Venezuela’s democratic institutions and
created a virtual petro-dictatorship. Kirchner’s attacks on basic civil
liberties have been much less egregious, and (unlike Venezuela) Argentina
remains a genuine democracy, albeit one that has witnessed a disturbing erosion
of press freedom. Still, her Chávez-like economic management has poisoned the
investment climate in a country whose global reputation continues to decline.
As Wall Street Journal columnist Mary O’Grady recently noted [11],
“Capital flight in the first half of this year was nearly equal to what left
the country in all of last year.”
Aided by a commodity boom and
a hopelessly divided opposition, Kirchner will almost certainly win reelection
this month, giving her another four years in the presidential palace. But
Argentines will be paying the price of Kirchnerism for much longer than that.
[1] reported: http://www.latinbusinesschronicle.com/app/article.aspx?id=5144
[2] Europe’s last
dictatorship: http://www.rferl.org/content/life_after_lukashenka/24348692.html
[3] states: http://www.imf.org/external/pubs/ft/weo/2011/02/pdf/text.pdf
[4] written: http://www.amazon.com/Forgotten-Continent-Battle-Latin-Americas/dp/0300116160
[5] a tragedy: http://en.mercopress.com/2009/04/18/summit-first-step-for-a-new-regional-order-says-cristina
[6] capital flight: http://online.wsj.com/article/BT-CO-20110804-726293.html
[7] banknote shortages: http://www.centralbanking.com/central-banking/news/1936302/inflation-stirs-banknote-shortage-argentina-reports
[8] writes: http://blogs.the-american-interest.com/wrm/2011/09/24/argentina-to-press-dont-ask-dont-tell/
[9] explains: http://www.google.com/hostednews/ap/article/ALeqM5im-yFYCcKWYr5ObYLSEteCFne9Ww?docId=d6867e43e149455089324c125919df69
[10] block: http://www.bloomberg.com/news/2011-09-28/u-s-opposes-loans-to-argentina-in-bid-to-boost-pressure-for-debt-accord.html
[11] noted: http://online.wsj.com/article/SB10001424053111903639404576518500116282600.html
[12] here: http://pajamasmedia.com/blog/falsifican-las-cifras-en-buenos-aires/
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