Cooking the Books in Buenos Aires
President Cristina Kirchner's political strength rests on the perception that she has presided over strong economic growth in Argentina. (Read this article in Spanish here.)
October 13, 2011 - 12:00 am
On September 26, the Latin Business Chronicle reported that Argentina would likely finish 2011 with the world’s second highest annual inflation rate, behind only Belarus, home to Europe’s last dictatorship. 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 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. “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” 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 and banknote shortages. Inflation has disproportionately hurt poor and lower-income Argentines, reducing their purchasing power and squeezing their budgets.