By Juan Forero
Washington Post Foreign Service
Sunday, August 16, 2009
BUENOS AIRES -- Workers at the government's National Institute of Statistics call it crass manipulation: Their agency, under pressure from above, altered socioeconomic data to reflect numbers palatable to the presidency. Inflation and poverty miraculously dropped, they said in interviews, and the economy boomed.
At least officially.
"They just erased the real numbers," said Luciano Belforte, an 18-year veteran at the institute. "Reality did not matter."
The alleged manipulation, which is under investigation by anti-corruption prosecutors, has angered Argentines. But in a globalized world, where a pensioner in Italy might be as likely to invest in Argentina as in Fiat, the suspected modifications are being felt far beyond this city.
In fact, an association of community college professors in New Jersey, a cattleman in Colorado and a Latino business group in California say they too are being shortchanged because they hold Argentine bonds. By underreporting inflation figures, economists say, Argentina is cheating investors of proper compensation on nearly $50 billion in debt benchmarked to inflation.
"The way these bonds work is that every month, or every six months, the principal adjusts for inflation," said Robert Shapiro, co-chair of the American Task Force Argentina, a Washington group lobbying for Argentina to pay its debt to American investors. "So if inflation is actually 30 percent, and they're only adjusting 10 percent, that's a huge loss."
Kathy Malachowski, president of the New Jersey professors group, said its pension plan invests in Argentine bonds. "We want to be able to retire and know that our money is going to be there," she said.
Officials at the Economy Ministry, the presidency and the INDEC, as the statistics institute is known, declined interview requests. A spokesman for the Economy Ministry, Sergio Poggi, said the new minister, Amado Boudou, is undertaking a review of INDEC methodology going back to 1999 and is creating a technical council of academics to advise the institute.
"This is the best way for all of us to be sure that things are being done correctly," President Cristina Fernández de Kirchner said last month.
But credit-rating agencies and financial investment companies, among them Credit Suisse, say they are skeptical anything will change.
The problems at the INDEC, recounted in interviews with seven current workers and one former administrator, began in late 2006 during the presidency of Fernández de Kirchner's predecessor, her husband, Néstor Kirchner.
In accounts backed up by a 91-page complaint by prosecutors, institute employees recalled incessant phone calls from high-ranking government officials who wondered aloud whether there was a way to arrive at lower inflation numbers.
In early 2007, several statisticians, data-entry clerks and field workers who collect consumer prices were replaced, the prosecutors' investigation has shown. The institute then began to report lower inflation figures, which are used to calculate poverty rates, economic growth and other statistics, according to documents at the attorney general's office.
"It's a maneuver that brought economic consequences and a lack of credibility in the information produced by the Argentine state," said Manuel Garrido, the former anti-corruption prosecutor who brought the case.
Economists say the official inflation rate of 8.5 percent in 2007 was really about 25 percent. In the 12 months ended this June, the INDEC put the rate at 5.3 percent, but economists say it might be three times higher. Argentina's vaunted economic growth this decade might have been exaggerated, too. Credit Suisse said the 7 percent expansion the government reported last year is likely 2 to 3 percent lower.
Political analysts and economists say the allegations have hurt the country's credibility with investors and its ability to access foreign credit, a market closed to Argentina after its 2001 default on $95 billion.
"It's very difficult to analyze the country as a result of statistics that can't be believed," said Fergus McCormick, senior vice president at DBRS, a New York credit-rating agency that tracks Argentina.
The controversy at the INDEC has cast a spotlight on a vital, if little understood, practice of economic planning -- the collection of socioeconomic data. Authorities use the data to set salaries and direct social services. Companies use the information to make long-term plans.
Government critics say officials in Néstor Kirchner's administration began fiddling with the INDEC figures as his wife's campaign to succeed him gathered momentum ahead of the October 2007 election.
Even so, by the spring of 2008, months after taking office, Fernández de Kirchner's popularity had plummeted after the country's powerful agricultural sector revolted against her economic policies. Analysts here say that disbelief over the INDEC figures -- polls showed that only one in 10 Argentines trusted official inflation figures -- further tarnished her image. In June, her ruling coalition was trounced in midterm congressional elections.
Raúl Cabral, who helps run the 120-year-old Progreso food market, said skepticism about the government's data has generated antipathy toward the Kirchners. "The inflation takes away their credibility," Cabral said. "They talk of inflation of 4 percent, and a liter of milk goes from one to two pesos."
What prosecutors call the illegal and arbitrary recording of economic data is said to have first taken place in January 2007. That was when a team headed by Graciela Bevacqua, a mathematician who oversaw the collection of consumer prices, tabulated that month's inflation at nearly 2 percent. Officials, though, released a 1.1 percent rate, said Bevacqua, whose account was backed up by the prosecutors' complaint.
"It was mathematically impossible," said Bevacqua, who no longer works at the institute.
Statisticians, mathematicians and survey-takers who still work at the INDEC described how managers stopped surveying products that had recorded steep price hikes. "If something went up more than 15 percent, they'd take it off the list," said Marcela Almeida, a mathematician and one of several workers deposed by prosecutors.
Almeida said managers would obsess about certain products, such as bread, urging surveyors to come back to the INDEC office with prices that remained low. If they were not low enough, Almeida said, "the person who received their forms would change this price."
The controversy has raised questions about the government's official poverty figure. The INDEC's calculation is 15.3 percent; the Catholic Church says it is closer to 40 percent. After Pope Benedict XVI called poverty in Argentina a "scandal" this month, the government acknowledged that as many as 23 percent of Argentines might be poor.
But economists, among them Juan Bour, of the Latin American Foundation for Economic Investigations, said they expect no major changes in the INDEC's data-gathering. "It would be a recognition of significant failure," Bour said.
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