Publish in Perspectives - Tuesday, February 19, 2013
Argentine President Cristina Kirchner risks expulsion from the IMF over her government's fake inflation data. (Photo: Argentine Presidency)
Will Argentina be kicked out of the IMF because of its fake inflation numbers?
The executive board of the International Monetary Fund on Feb. 1 formally censured Argentina over the accuracy of its economic data. The IMF's move could lead to the South American country losing its voting rights or even its membership if it does not improve the accuracy of its inflation and GDP data. Will Argentina improve its data by the Sept. 29 deadline that the IMF has set? Is the IMF likely to revoke Argentina's membership if it does not? What would losing voting rights, or even being booted from the IMF, mean for Argentina?
Claudio Loser, visiting senior fellow at the Inter-American Dialogue and former head of the Western Hemisphere Department of the International Monetary Fund: The IMF declaration of censure is a rarely used procedure. In fact, it has not been used in 60 years. To outsiders it may sound like a benevolent slap on the fingers, but that is not the case. After several years of seeking a solution to the misreporting, the IMF board has actually put in motion a major formal process, last used against Czechoslovakia during the height of the Cold War. The process entails several steps, including banning Argentina from borrowing from the IMF, suspending its voting rights and eventually expelling it from the IMF. The Argentine government may downplay the sanctions and could leave the IMF before any action is taken against it. However, it would then lose the equivalent of more than $3 billion in Special Drawing Rights (the IMF virtual money created almost 50 years ago). This is part of the country's foreign reserves, and currently comes at no cost to Argentina. It would have to leave the World Bank, and would thus have to repay all loans outstanding, although not immediately. There would be additional problems with Argentina's creditors under the Paris Club, not to mention its membership in the G-20. The Argentine government may be dismissing the censure but, mixed with its attacks on the IMF, it has announced that that it will develop a new price index, possibly seeking to solve the problem. That suggests it is not taking this as lightly as it claims.
Peter Winn, professor of history at Tufts University: In most countries, economic statistics and IMF analyses of them are rarefied issues that economists debate and few others follow. In Argentina, they are political issues, which can become salient electoral issues. In part, this economic data has become politicized because the opposition has made the reliability of government statistics and the inflation that those ostensibly manipulated numbers have allegedly been hiding their political battle cry. Argentines also blame the IMF for the 2001 financial meltdown that detonated the worst economic crisis in recent Argentine history, a crisis from which the late Néstor Kirchner extracted Argentina, using decidedly non-orthodox economic policies. So, if inflation is becoming difficult to hide and the Argentine peso is losing value, Fernández would like nothing better than to be in a position to blame it on the IMF, even more so if Argentina is on its way to another crisis, as some predict. The Kirchners have already won elections by running against the IMF. Fernández would love to have another such opportunity. This is particularly true if she can wrap herself in the flag of Argentine nationalism and resist foreign 'imperialist' interference in Argentina's internal affairs, a classic Peronist stance. Moreover, the fact that the IMF is embracing the issue and position of her domestic political opponents will enable her to tar them with the brush of being imperialist lackeys. Comply with IMF demands for better statistics by September? Why would Fernández want to do that? Getting kicked by and out of the IMF might restore her flagging popularity.
Fausto Spotorno, director of research at Orlando Ferreres and Asociados in Buenos Aires: Official statistics in Argentina have serious problems. Not only does the consumer price index underestimate true inflation, but GDP statistics overestimate economic growth. This has contaminated all sorts of statistics, like poverty and extreme poverty figures, retail sales, real growth and other indicators. After the IMF's action against Argentina, the country's economy minister said the government is working on a new CPI. However, this announcement lacked credibility. In fact, there was no reaction in the market of inflation-adjusted bonds and there is little hope that government will change its policy on official statistics in the coming months. In November 2010, Economy Minister Amado Boudou (who is now vice president) announced that INDEC will begin to work in a new nationwide CPI. Supposedly, this new CPI would have the IMF's technical assistance. There is serious doubt that the IMF knows what is going on with the new CPI. On the other hand, the problem with official statistics is not methodology, but rather INDEC's data. So if the government really wants to solve the problem, it can start now. That's why the IMF is probably taking these measures. The government is showing no willingness to solve the problem, and all these announcements about a new nationwide CPI look like delay tactics. In my opinion, the ball will be in the IMF's court, and the government does not look very worried about the possibly of expulsion. In the short run, the impact of expulsion wouldn't be so negative, and may even be desirable to the most radical supporters of the ruling party. In the long run, however, it would be bad for the country and may affect Argentina's relations with other international organizations like G-20 or other countries.
Miguel Kiguel, executive director of EconViews in Buenos Aires: The saga between Argentina and the IMF about the accuracy of inflation and growth statistics entered a new chapter when the IMF board issued a motion of censure and asked the government to take corrective actions by Sept 29. What are the likely next steps for both sides? Argentine officials initially took a confrontational stance and harshly criticized the technical capacity of the Fund. In addition, they perceive that caving in to the IMF deadline (which is just two weeks before the midterm elections) would spell political defeat. Nevertheless, the economy minister announced that the government would start devising a new national CPI by the end of the year and that it would begin using it in 2015. This strategy seems to be, once again, to buy time on the hopes that the IMF will delay further sanctions. The IMF, on the other hand, is putting its credibility on the line. It set a deadline and Argentina is unlikely to show by then that it is ready to take the remedial actions required by the IMF. Perhaps the IMF board could take one additional step and suspend Argentina's voting rights and its access to general financing. Nevertheless, it seems implausible that Argentina will be expelled from the IMF. In the end Argentina will need to go back to producing a reasonable set of statistics. The main question is whether it will be this government (unlikely) or if it will be one of the first tasks of the next government.