Argentina's budget estimate of 5.1% annual growth in 2013 overly optimistic, analysts say, noting that inflation is double official estimate, growth could be as little as 1% next year; budget assumes 6.2% growth in 2014, with 10% inflation

Allison Oesterle

Allison Oesterle

Oct 10, 2013 – Associated Press

BUENOS AIRES , October 10, 2013 () – Critics: Argentina's falsified GDP could trigger $4 billion in needless bondholder bonuses

Argentina's Congress, controlled by President Cristina Fernandez, has passed a budget that inflates economic growth numbers and puts the country on track to unnecessarily pay billions of dollars in bonus payments to bondholders next year, opposition lawmakers say.

Senators passed the budget 40-27 Wednesday after debating for more than 11 hours as Fernandez recuperated from skull surgery. The Chamber of Deputies, also controlled by the president's party and allies, approved it two weeks ago.

The budget anticipates annual growth of 5.1 percent for 2013, even though various analysts say the economy is growing less than 3 percent this year.

Serious money is at stake: If the government reports growth of 3.2 percent or more for 2013, it will trigger billions of dollars in bonus payments to bondholders in 2014. The sweeteners were promised years ago to investors who had to write off two-thirds of Argentina's defaulted debt in exchange for new bonds.

"The government is foreseeing growth that's not real; this will cost the country $3.8 billion to pay its dollar-denominated debt on GDP warrants," said opposition lawmaker Federico Pinedo.

The budget also assumes a bright 2014, with strong 6.2 percent growth and inflation of just 10 percent. But outside economists say these estimates are wildly optimistic, that gross domestic product could grow by as little as 1 percent next year, and that inflation is running at double the official estimate.

They say Argentina's economy is much weaker than government number-crunchers are reporting, and the statistics Fernandez cites in her "victorious decade" speeches are costing the country dearly in many different ways.

"It's completely illogical," said Gabriel Torres, a vice president at Moody's Investors Service who analyzes Argentina's sovereign debt.

"Argentina pays less than it should on its peso bonds; we estimate 20 percent less, because it lies about inflation. And meanwhile, it's paying too much to people with dollar bonds linked to growth. It's paying too much to foreigners, and too little to its own people. I don't understand the logic."

The government rejects such criticism, saying its goal is social justice, not economic orthodoxy.

The official data reflect its efforts to centrally control the economy, subsidizing major industries, fixing prices and controlling currency flows to the point that it's almost impossible now to legally trade pesos for dollars.

"We are consolidating public policies that have nothing to do with orthodox policies" like those of Europe, ruling party Sen. Anibal Fernandez, chairman of the budget committee, said during Wednesday's debate.

He promised that government spending would boost the economy and provide strong growth despite adverse conditions globally, putting more money into Argentines' pocketbooks.

Argentina's inflation numbers have been in doubt since 2007, when Fernandez's late husband and predecessor, Nestor Kirchner, had political appointees change the methodology of the official statistics agency, INDEC.

Low official inflation historically kept salaries and consumer prices from going even higher, but now even close government allies demand pay hikes of 25 percent or more to match the price increases they see on store shelves.

Proving that GDP growth is different from what a government is officially reporting is difficult, since these numbers are based on a huge amount of data including detailed productivity analyses of each industrial sector.

But economists at the University of Buenos Aires and Harvard said they did just that, and found Argentina's growth would been much slower had the government kept the same methodology used for 25 years before 2007.

"According to official figures, Argentina is the 'growth champion' in the whole region: its growth accumulated an impressive 99 percent, which more than doubles the region' average," from 2002 to 2012, economist Ariel Coremberg concluded in the study.

However, a closer examination found Argentina's real growth over the decade was nearly 30 points lower — 71 percent, he wrote.

Picking and choosing numbers for political reasons effectively opened a Pandora's box, making it impossible to avoid distorting other indicators such as income distribution and poverty, the report said.

"At present, for example, Argentina has an official poverty rate at a lower level than the ones of many developed countries such as Sweden, Finland and other Nordic European countries with the best well-being indicators of the world," the report said.

Opposition senators cited statistical manipulation as they argued against budget approval Wednesday, but the ruling party had the votes to pass it.

Sen. Carlos Reutemann said that by underestimating inflation, the government is more likely to collect revenues that can be spent without congressional approval because they weren't anticipated in the budget.

"The executive is a vacuum cleaner that uses all the cash drawers," Reutemann complained. "This budget is far removed from reality."


Associated Press writers Almudena Calatrava and Luis Andres Henao contributed to this report.


Michael Warren on Twitter: @mwarrenap.

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