Cooking the Books in Buenos Aires

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.

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 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 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 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, “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.

Read this article in Spanish here


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