By Anna Edgerton
In center of Buenos Aires, not far from the Ministry of Economics, some crude graffiti says simply, “con la comida no se jode,” or in English, “don’t fuck with food.” To many Argentines though, the government is doing just that.
Last week the Argentine government authorized a food price increase for the third time this year. After going into effect on Tuesday, the cost of some high-end products has spiked more than 30 percent since December. Without officially acknowledging the extent of inflation, the Argentine government continues to implement policies to deal with the reality of the problem. Hiding the issue won’t make it go away, and the fictitious numbers are only scaring investors away.
Private analysts estimate that annual inflation in Argentina is about 25 percent, on par with Venezuela, giving it one of the highest rates in South America. Yet, the official national statistics institute INDEC consistently reports that inflation is a mere 9.7 percent. “Everybody knows that INDEC figures are not trustworthy,” says Nicolás Bridger of the Argentine consulting firm Prefinex.
In January of 2007, the government dismissed the director of INDEC and appointed a close ally who would be more cooperative. This amounted to a government takeover of this previously independent agency orchestrated by interior commerce secretary Guillermo Moreno. Immediately, the official inflation rate dropped below 10 percent. “At first people were surprised and offended, but now everyone recognizes that the government lies about inflation,” says Bridger. “The INDEC figures are not currently used in any decision making.”
This is especially suspicious considering that about a fourth of Argentina’s restructured debt repayment is linked to inflation data. A lower rate on inflation saves the government millions on interest payments to international bondholders. However, Bridger also points out that since much of the debt is now also held by the government, “it would be like lying to oneself.” He thought that misleading inflation data is more politically motivated.
Unreliable economic data is consistently cited as a negative factor for Argentina’s credibility with international investors, despite impressive economic growth over the past eight years. Last week, international ratings agency Fitch specifically pointed to INDEC’s questionable inflation figures when it did not raise Argentina’s credit rating as it did with Brazil, Uruguay, Colombia, Bolivia, Panama, and the Dominican Republic.
Not only are official statistics suspect, but private analysts are also being intimidated with hefty fines for publishing their findings. This year Moreno issued a decree making it illegal to report independently calculated inflation data. This threat was actually carried out in June with a fines of $120,000 issued to two private consulting firms. Moreno accuses private analysts of manipulating data for economic gain, while the independent consultants (and opposing politicians) charge the government with manipulating economic indicators for political purposes.
Bridger describes the government as “paranoid”—so much that it is unwilling to acknowledge the reality of inflation, even as it puts policy into place to deal with it. But cooking the books to stave off political consequences has real economic consequences, especially in rampant capital flight and investor aversion. Almost every international economic report mentions concern with INDEC’s figures.
Inflation itself has consequences beyond the higher food prices. A less competitive local currency makes imports cheaper. Together with increased consumer demand encouraged by steady economic growth and government subsidies to families, imports are beginning to outpace exports, causing Argentina’s trade surplus to shrink by 22 percent in the past 12 months.
Although far from the hyperinflation of the 1990s, an unreliable currency discourages saving both on an individual and commercial level. This has an adverse effect on businesses and projects that must estimate their future costs.
This week’s price increase will be applied differently to each of the three “baskets,” that are used to classify food products in Argentina. The prices for “basic” products will rise by about three percent, “select” products by six percent, and “premium” products by up to 10 percent. Combined with previous two price adjustments this year, the increase far exceeds the official numbers for inflation and aligns with the independently calculated estimates.
INDEC only uses the price of “basic” products, defined as those marketed for mass consumption to calculate inflation. For the brand of yogurt Ser, its plain product falls into the “basic basket,” whereas the reduced fat product is considered “select” and Greek style yogurt is considered “premium,” according to the example cited by Argentine newspaper Clarín. Moreno was in contact with almost 100 businesses before settling the specifics of the most recent adjustment. The prices of the “select” and “premium” products are not taken into account by INDEC analysts.
When pushed on inflation figures, Horacio Rovelli, director of macroeconomic policy in Argentina’s ministry of economics, declined to comment on which figures—those of INDEC or from private analysts—drive policy decisions, although he maintains that Argentina is accustomed to inflation and has the mechanisms in place to deal with it. He pointed out that wages are adjusted every year in a series of intense meetings with the relatively powerful labor unions to account for changes in the cost of living. This year, the government raised wages between 25 and 35 percent compared to last year.
“Not even the government believes the official figures,” says Bridger of the private consulting firm. He added that, like the increase in wages and food prices, the government also increased social security payments by 40 percent.
The announcement of the price hike was delayed until a week after the presidential primary, which took place on August 14. Current president Cristina Fernández de Kirchner won over 50 percent of the votes, with economic minister Amado Boudou as her vice presidential candidate. This overwhelming support reflects confidence in Argentina’s economy, which is set to grow 8.2 percent this year according to deputy economy minister, Roberto Feletti, although a Reuters poll last month put estimates at a considerably lower, but still strong, 6.9 percent growth. Still, some are suspicious at the depth and sustainability of this economic growth, with inflation—and the numbers that lie about it—as a prime example.
Anna Edgerton, a former editorial assistant at World Policy Journal, is an independent journalist based in Buenos Aires. This fall she will return to New York to finish her masters degree at the School of International Affairs at Columbia University.
(Photo courtesy of Flickr user Alex E. Proimos)