Imminent Monitoring Faceoff

By giving Argentina just three months to get its statistical act together, the International Monetary Fund (IMF) has effectively begun the process of sanctioning the Cristina Fernández de Kirchner administration without actually saying so. In shortening the grace period from six months to 90 days the IMF has deliberately painted itself into a corner because if INDEC statistics bureau has not mended its ways by December, no other choice to immediate sanctions than an even briefer ultimatum is available. If the IMF were bent on maintaining its traditional aversion to direct confrontation (never sanctioning a country for statistical abuse in nearly seven decades since its creation in 1944), it could find an elegant enough formula in the terms of the last postponement — INDEC had agreed to a new nationwide index for measuring inflation by the end of 2013 so why not simply wait until then? Something has clearly snapped if the IMF now grants a respite allowing no time for serious corrective action (although still last-minute negotiations) — evidently the number of heavyweight IMF members who feel that Argentina has crossed the line in the last year has grown, forcing the IMF into more drastic action.

Criticisms of INDEC almost invariably focus on its insistence on single-digit inflation here (as against the 25-30 percent measured elsewhere, including official provincial bureaus) — the more so since billions of dollars have been lost to the index-linked bonds thus shortchanged since the tampering began in early 2007 — but there are other issues. The main boast of CFK’s “model” is not allegedly low inflation but “Chinese” growth rates yet the latter is a product of the former — other countries do not share this advantage of passing off most of their nominal growth as real growth by ignoring inflation, thus making the growth of the last five years appear much higher than the reality. Not to mention the wider issue of Argentina shunning Article IV stipulating IMF monitoring of all government accounts and statistics.

Everybody’s bluff is sure to be called come December because the CFK administration has too many vested interests in an inflation which punishes everybody else (especially the poorest). Widely seen as a price of growth (even if hardly the case this year), inflation creates revenues free from any federal revenue-sharing (especially via the low income tax floor which infuriates trade unions) and serves a perverse sense of social justice by levelling down the incomes of a newly demonized middle class. The world may not be ending at the end of 2012 but Argentina’s relationship with the IMF is on the brink.