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Numbers racket in Argentina

January 31, 2013
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Source: LA Times

In 2007, the government of Argentina fired Graciela Bevacqua and other statisticians who were collecting its price statistics and inflation estimates. Since that time, large and disturbing — even shocking — discrepancies have developed between the official inflation estimates (roughly 10% a year) and privately generated estimates announced by Bevacqua and others (roughly 25% a year).

Why would the Argentine government take such drastic action?

In late 2001, Argentina defaulted on its bonds, and it has refused to negotiate with its creditors. This has cut off the third-largest economy in Latin America from the international capital markets. To finance itself, the government has taken to seizing or nationalizing assets (national pension funds, reserves of the Central Bank, the Spanish oil company YPF) and printing money so the banks can buy the government's bonds. Because of a history of hyperinflation (and roller-coaster boom and bust), inflation is a sensitive domestic matter. In 2012, the economy slowed, and recent large demonstrations in Buenos Aires against inflation suggest that the Argentine people do not believe their government's inflation numbers.

On top of all that, Argentina has sold bonds whose value is tied to the rate of inflation. If it underestimates inflation, it owes less.

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