Argentina apparently ready for IMF to scrutinize public accounts

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The Financial Times noted that “scrutiny of its public accounts will not... be comfortable for Argentina. Inflation and other data have become discredited amid widespread suspicion that the government has been fudging the figures since 2007 to conceal rampant price rises. The IMF has taken to noting in its annual reports that private economists question official Argentine data.”

Neil Shearing, senior emerging markets economist at Capital Economics, is somewhat cautious about this new development.

“An IMF program is normally a per-requisite to rescheduling debts with the Paris Club – and given Argentina’s fractious relationship with the Fund, this has proved to be a major stumbling block in the past,” he said.

“However, it now seems that both sides could reach an agreement, in which the Argentine government
would allow the Fund to scrutinize official data and the Paris Club would waive the usual requirement for a full IMF program. If this is the case, then it would undoubtedly be a big step in the right direction.”

Shearing indicated that since a staff reshuffle at the top of Argentina's National Statistics Institute (INDEC) in 2007, concerns have been raised about how the body reports inflation data.

“By under-reporting the rate of inflation, the government reduces its interest payments on index-linked debt,” he explained. “We estimate that for every 1 percent-point that the government
under-reports inflation, the pace of increase in government spending falls by something like 0.3 percent.”

There also concerns about INDEC's data on economic growth.

“While INDEC estimate that the economy grew by 0.9 percent last year, our Argentine Activity Indicator suggests that output contracted by 3.5 percent,” Shearing noted. “Dubious data adds a substantial risk premium to Argentine assets.”

As such, Shearing remains somewhat skeptical that the Argentine authorities will really open up their accounts for scrutiny.

“Plans to open the books to the IMF have yet to be confirmed by government ministers,” he said.

“Note too that previous attempts to bolster the credibility of official data (such as the Parliamentary commissions set up earlier this year) have largely failed. The involvement of the IMF clearly reduces the chances of another whitewash but, for now at least, we remain only cautiously optimistic of progress on this front under the present administration.”