MercoPress. South Atlantic News Agency

The Economist and latest “hocus-pocus” from the Kirchners

Juggling numbers to the whim of the presidential couple

Under the title of “Hocus-pocus” the June 12th edition of The Economist refers to the latest “cooking the books” decision by the current administration of President Cristina Fernandez de Kirchner.

This refers to tailoring inflation records to the wishes and needs of government by formalizing the fiddling of numbers that begun under Mr. Kirchner's government in January 2007, with a new system to estimate the consumer price index which simply removes those products "out of tune". But this will not prevent real inflation from advancing with all the negative consequences it entails, politically for the Kirchners and in economic growth and disarray for Argentina. The full article follows:Rising inflation is causing headaches for central bankers across the world. But it seems that Argentina's monetary policymakers will be spared such concerns, thanks to the country's updated consumer price index, which came into force on June 10th. According to the new methodology, every time a product's price rises too sharply, it will simply be removed from the index on the ground that consumers will be deterred by the expense and switch to other goods. It came as little surprise, therefore, when the government announced the official inflation figure for May to be a mere 0.6%, while virtually all independent estimates topped 1%. Argentines are accustomed to their government cooking the books. Since January 2007, the official inflation rate has been doctored to remain in single digits, while the true figure has soared above 20%. When Cristina Fernández de Kirchner succeeded her husband as president last December, it was hoped that she might help restore the government's computational credibility, given that she had promised during her campaign to revamp the national statistics bureau. Those expectations have now been dashed. Rather than stopping the meddling that took place during Néstor Kirchner's administration, the new index merely formalizes it. Even without the government's creative accounting, inflation would still be Argentines' prime concern. Thanks to a public spending binge ahead of last October's elections, along with government-mandated wage increases, a cheap currency and low interest rates, demand has charged ahead of the economy's productive capacity. Most forecasters expect prices to rise by 25-30% this year. Salaries are struggling to keep up, particularly for workers paid under the table. According to Ernesto Kritz, a labour economist, real wages are now stagnant at best, and poverty and income inequality are on the rise. This has caused Ms Fernández's popularity to fall even faster than inflation has risen, from 54% in February to 26% now, according to Poliarquía, a pollster. But manipulating the official statistics has created costs of its own. Corporate expansion plans and bank lending depend on a reliable benchmark of price increases. In its absence, the long-term investment required to alleviate inflationary pressures has foundered. And although Eric Ritondale, senior economist with EconViews, a consultancy, reckons that the government saved around $500m last year on its inflation-protected bonds as a result of fiddling its figures, investors have punished Argentina for its malfeasance by increasing its risk premium, forcing it to pay higher interest rates when it refinances debt. Fixing this mess will not be easy. The Kirchners are loath to recognise mistakes, and a legitimate recalibration of the index would require them to admit they have been deceiving the public. A serious effort to combat inflation would also entail implementing policies they have publicly denounced: reducing transport and energy subsidies, raising utility tariffs, increasing interest rates, appreciating the currency and keeping a lid on wages. But the longer they wait to come clean, the fresher their deceit will be in the minds of voters in next year's mid-term elections.