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If INDEC recovers, US$3.4 billion in debt will have to be paid
Perfil
August 16, 2008

The strategy of repurchasing bonds to sustain interest rates will not be sustainable over time. The markets and the economy will demand the rejuvenation of INDEC. But the updating of the indices would reveal an inflationary level that would impact the debt maturities already passed on bonds that are adjusted for inflation totaling US$3.4 billion that would have to be faced up to. The debt stock would grow by more than US$11.5 billion. The difficulties in switching the indicators destroyed by Moreno's leadership with credible and legitimate numbers in the future. Specialists weigh in.

By Carmen Lopez Imizcoz

If the government plans to sort out the financial lack of confidence, the policy for repurchasing bonds that was carried out this week will not manage to totally calm the upset among investors. Financial traders are waiting for concrete trends toward the straightening out of the statistics at INDEC.

But the government faces various obstacles to pull that off. Many are political, like the whitewashing of policy mistakes from the previous administration on INDEC and in terms of prices, which is synonymous with recognizing faults. But to allow lies on inflation data also has a higher fiscal cost, the same as having planned to deceive with the manipulation of the indices, but exacerbated with the lack of confidence and disparaged prices.

The public debt adjusted for inflation is indexed as part of the price index. The amount to face will depend on whether the whitewashing of real inflation will continue or not over the next year and a half, a period with some 20 percentage points of "underestimation", or if it will only be cleared up going forward, in accord with the calculations of private consultants.

According to the estimates, which opt to assume that retroactivity will be inevitable, ending the lying on inflation will have a fiscal cost of some US$3.4 billion. Treated as "additional" maturities in principal and interest on debt indexed for inflation that, since January 2007 and until 2010, will have to be face by the State for recognizing a larger public debt stock.

And that only takes the past into account. In the future, for each percentage point of real inflation recognized, they will have to assume payouts of another US$100 million per year.

History. These amounts refer to payments. But if the underestimated inflation since January 2007 and until today were to be recognized, there would be another fiscal impact, which would be a rise in the stock of debt adjusted for inflation of US$11.508 billion, a considerable amount if one takes into account that the adjustable stock of debt is currently US$57.542 billion.

However, to underestimate inflation also carries with it a concrete cost: the higher rate demanded by the markets to refinance debt. And, while it can't be quantified, it's likely that this price exceeds the benefits (smaller future payments on already emitted debt). On balance, to stop lying would bring benefits to the government.

Recovery. Could INDEC be fixed? Are the series of prices, with what was cooked up in the CPI, recoverable? According to what Juan Carlos Abril, Vice-President of the Argentine Statistics Society and ex-director of Tucuman province's statistics and who holds a doctorate in statistics, explained to PERFIL, first it would have to be known if there'd been a break with the "paper trail", or the physical registry that each researcher made when going out to get the prices. If it is not destroyed, it will have to take two months for the total reconstruction from December 2006 until such current date.

However, if the paper trail has been destroyed, as is suspected, it will be necessary to use time series tools, an area of statistics. How is it done? In the processes that follow over time, like inflation, predictions can be made. It could be said that inflation of the next month more or less will be in a certain range, given recent history.

The novel thing would be, in this case, that it would be used to predict the past, looking at the existing history from October-November 2006 to the present.

To find out the totals in the "hollow", they interpolate the data through heavy mathematics. Thus, levels of confidence would be obtained. For example, it could be said that estimated inflation for a month without information would have to be between two numbers.

Different from the current statistics, the interval will have to have a likely margin of error and it will be seen how much of a burden that is. Thus, even mistakes could be measured in money.

Massa: "Confidence has to be built"

The chief of the Cabinet, Sergio Massa, yesterday assured that "work has to be done in building confidence" in the INDEC, reiterating his position that had been hidden soon after taking office and recognizing the deterioration in the statistical organization. In Entre Rios, the official said that confidence is necessary "so that the government knows what it's doing in every state sector, and that is what will also be done at INDEC." Other Kirchnerist officials also referred to similar terms in the last few days, which was read as a hint of changes in the organization. Massa had placed as a condition of assuming office this renovation, including the exit of Trade Secretary Guillermo Moreno. The Cabinet Chief also minimized warning signs from different sectors regarding economic problems. "The years of heavy plastering have happened, now is the time for fine plastering," he said.

Yesterday it was revealed that the plan for repurchasing bonds reached US$270 million, producing rises of up to 11% in Argentine debt bonds. In as much, ATE complained that yesterday that someone entered and postered the offices of the union headquarters at Carlos Calvo 190, which was closed and locked, with defamatory words. "This could not have been done without the approval of the authorities," said Raul Llaneza of ATE-INDEC.