Argentina’s National Bureau of International Accounts, known as INDEC in Spanish, has been suffering from the intervention of the administration of President Nestor Kirchner, who is obsessed with maintaining his country’s annual inflation below double digits. Guillermo Moreno, Argentina’s secretary of interior commerce, has been pressuring providers of such public services as transportation, health insurance and tourism to comply with this goal. Yet the future of INDEC, which is in charge of measuring such indicators as poverty, unemployment and the trade balance, is at risk because the institution’s credibility is now suspect, say analysts.
According to rumors circulating around the capital, Guillermo Moreno threatens business executives and forces them to lower their prices, speaks in an authoritarian tone in those private meetings and even puts his feet on the desk as if he were a Mafia boss. Although those kinds of stories are frequently told in office corridors, they are very hard to prove. Regardless of their veracity, the fact remains that Moreno is one of the top officials in the government of President Néstor Kirchner, and his job is to keep [annual] inflation from going into double digits.
At the end of January, estimates from some economists seemed to suggest that Argentina’s Consumer Price Index was going to surpass 1.5% for January. Moreno and Felisa Miceli, who heads the Ministry of Economy and Production, were ordered by Kirchner to replace one of the most important officials of INDEC for having refused to supply information about the businesses used for collecting the data.
On January 29, Graciela Bevacqua, who was in charge of INDEC’s department of consumer prices, left that organization. Bevacqua was replaced by Beatriz Paglieri, who is close to Miceli, the minister of Economic and Production. The media, political opposition and outside experts all interpreted this move as a sign that the government was virtually “intervening” in INDEC. Officially an independent institution, INDEC is responsible for tracking such sensitive indicators as poverty, unemployment the price index and exports, among other things. The commotion was so great that foreign newspapers, including even France’s Le Monde, published stories about it.
With Beatriz Paglieri in charge of consumer prices, INDEC issued numbers that showed the consumer price index rose by only 1.1% in January. The keys to arriving at this figure involved the interpretation of headings covering tourism and healthcare. In a monthly report from the Catholic University of Argentina’s program for economic analysis, Ernesto O’Connor wrote: “A striking fact was that the growth rate recorded in the tourism sector was below the numbers in the same month last year . When they calculated the index, they wound up with price rises of only 2.2% for healthcare services, which reflects partial increases for pre-payments, or co-pays. It does not take into account increased costs in basic health insurance of up to 23%.”
The Credibility Issue
That fact is important because the consumer index functions as a thermometer, and measurements of poverty and destitution vary according to the way prices rise for a basket of basic commodities and foods. In addition, the price index influences the salary levels of various labor unions and their peers, since it takes the rate of inflation as a point of departure when it comes to asking for new salary increases.
Growth in the price index can also be significant for determining the total value of the public debt in pesos.
Something else also worries the specialists. “Without doubt, these stories have already affected the credibility of the institution [INDEC], particularly because its historical technical role was blurred by accusations that the statistics and indexes were subject to political manipulation,” says Gustavo Martinez Pandiani, dean of the University of Salvador (USAL). He adds that INDEC’s credibility “is the most important indicator that INDEC has to care about. An essential component of its credibility is its independence from political power.”
Eduardo Fracchia, director of AustralUniversity’s economics department, was personally affected by this issue when he worked for the Economic Commission for Latin Americaand the Caribbean. At the time, Fracchia was a frequent consultant to INDEC. “I always admired the mysterious professional task of this public-sector institution, which enjoys international prestige. INDEC’s lack of independence is extremely dangerous because we are dealing with the raw material for economic analysis, which is data,” he notes.
Although INDEC is an institution that depends on the Ministry of Economics and Production, it manages its own budget. Administrators in each area of activity are in charge of professionals who acquire those posts after a process of competition. The methodology for preparing these statistics meets with the usual international criteria. Another negative consequence involves Argentina’s image abroad. “It may have done some harm among international decision makers, although this will depend on how things work out in the future,” says Fracchia.
Beatriz Nofal, president of the Argentina Investment Promotion Agency, was on a business trip to the United Stateswhen the INDEC crisis began. Nofal admits that “this is an area that troubles” foreign investors, although their pattern of behavior will depend on how the overall economy progresses.
For his part, Pandiani does not believe that the image of the country “consists entirely in the reliability of the indexes published by any institution. A lot of other, more relevant factors are involved. Nevertheless, the [concerns about] INDEC does not help strengthen the image of the country.”
Opportunityfor the Private Sector?
A number of observers feel that INDEC has maintained its independence from successive governments. Fracchia, for one, thinks that INDEC “uses various methodologies from international best practices, and what it produces is trustworthy. It faithfully reflects reality, although obviously there are some biases and there are periods when each indicator is [more] trustworthy.”
Beyond INDEC, many private consultancies, universities and business organizations publish their own indexes. Even Argentina’s Central Bank creates a comparison of all the economic indicators in order to see who came closest to the official data. Many wonder if the private sector can somehow benefit from the government’s intervention in INDEC. “There is a potentially profitable niche for consultants who could take advantage of it,” says Fracchia. “But [their work] will never have the technical quality of INDEC, which covers a much larger universe of products and services.”
For Pandiani, “The function of a public-sector institution is very different from what private consulting firms can offer. In any case, the more indexes that are measuring the economy, the better that is. It doesn’t hurt if they are more [such indexes] so long as they are prepared in a way that is serious and professional.”
What has to be done to prevent INDEC from suffering more damage? After all, the institution is also responsible for reporting statistics for the entire country. Pandiani suggests that the “first thing the government should do is to call for a public examination of the record so it can choose technical criteria to make decisions, rather than political factors subject to the institution’s senior staff. Most definitely, INDEC is not the appropriate institution for ‘fighting’ inflation, but one for measuring it and analyzing it.”
According to a report by UCA, the Catholic University of Argentina, “The relevant point is that real inflation is about 15% a year, given prices implicit in the GDP and the variation of other prices in the economy. This is particularly risky, and it will have an impact on middle class consumers who will need to make adjustments in their consumption patterns.” The “middle class” is defined as those workers who are not subject to any trade union agreements, as well as independent workers who cannot increase the income they earn.
According to Fracchia, the government’s obsession with resorting to any type of control that is required for keeping inflation in single digits is not the best solution. “For stopping inflation, the government needs to make moves on four fronts: First, monetary contraction; second, even greater fiscal discipline. In addition, they need to let the dollar fall, as in Brazil. And finally, salary increases have to be more moderate.”
Guillermo Moreno has been pressuring small business, auto and appliance manufacturers, public service companies, and others to pursue the traditional goal of holding back consumer prices.
Less than a month after the removal of Graciela Bevacqua from INDEC, another high-level official, Clyde Charre de Trabuchi, asked to be relieved of her position on March 1 because of differences concerning methodological changes imposed by the government. De Trabuchi was INDEC’s director of household surveys. In addition, de Trabuchi has filed a lawsuit aimed at investigating what is really going on in INDEC. On various occasions, of example, it is said that workers have joined forces to carry out work stoppages.
As INDEC tries to regain prestige, people are wondering: Who will be the next victim of the government’s efforts to control prices?