Economists dub the challenge of
creating analysis with faulty data “GIGO,” or “garbage in,
garbage out.” Fudged statistics may seem relatively innocuous
within the context of problems confronting the global economy.
However, faulty data can thrust millions into poverty and
prevent others from reaching the middle class.
John Maynard Keynes argued vehemently that the
International Monetary Fund should play a central role in
ensuring quality statistics for the management of the world
economy. “There is hardly any greater service the Fund can do
than provide up-to-date barometers of the monetary problems of
the world,” Keynes said at the Bretton Woods Conference in
1944.
Now, a case pending before the IMF executive board involves
Argentina’s manipulation of data and a broader challenge of
enforcement.
Official Argentine data suggest that prices rose by almost
70 percent from 2007 to the end of 2012, while private estimates
put the total advance in prices at more than 200 percent. The
cost of such faulty statistics is extremely high. Cooked
inflation statistics reduce real wages, penalize savers, defraud
holders of inflation-linked bonds, diminish investment, and
tarnish the quality of knowledge and future policies.
Capital Flight
Risks extend well beyond the annual loss in purchasing
power for participants in the Argentine economy. The persistence
of such an environment -- where there are few incentives to keep
funds in pesos -- sets the stage for another cycle of capital-
flight-driven currency devaluation followed by accelerated
inflation. The “blue-chip swap,” or unofficial exchange rate,
strongly signals the risk of a roughly 40 percent devaluation of
the peso over the next year. Sadly, this vicious circle is well-
known, having wiped out individual savings many times over the
years in Argentina and elsewhere.
Moreover, exchange-rate risk stemming from faulty inflation
statistics and an unsustainable macroeconomic mix will keep
investors sidelined. This will critically limit Argentina’s
long-term growth potential, as boundless investment
opportunities will probably remain untapped.
Conversely, the benefit from reliable data is enormous.
Greater transparency and access to quality information have
contributed to the near-doubling of the nominal gross domestic
product of emerging economies in the past six years, despite the
recent financial crisis. Although seemingly arcane, better
information has provided corporations and individuals with the
confidence to invest. Greater confidence and investment have
provided the fuel for economies to grow and the ranks of the
middle class to swell.
Unfortunately, for Argentines and the rest of the world,
the IMF seems unwilling to give its statistical branch the
political support needed to provide meaningful barometers for
monetary problems in Argentina. Thus far, the country’s
government is winning the cat-and-mouse game.
The IMF first sent a mission to Buenos Aires to advise on
inflation and other economic statistics in December 2010. Since
then, the IMF has issued a series of statements and reports, and
organized meetings with staff, the executive board and senior
management. Almost two years later, the IMF board publicly
“regretted the lack of sufficient progress” by Argentina in
implementing measures to improve reported data. It again called
on Argentina to “implement measures without delay” and
requested that IMF Managing Director Christine Lagarde report to
the board on Dec. 17, 2012. At the meeting last month, the board
postponed a final decision until the end of January.
Driving Force
The IMF has been a driving force for improving macro and
financial data over the past three decades. Ironically, the
improvement in data paralleled various financial meltdowns,
beginning in August 1982 with the less-developed-country debt
crisis. Early on, consolidated stocks of external debt in
various LDCs were difficult to find. In the mid-1990s,
statistics on foreign-exchange reserves were often inaccurate
and infrequently reported. There have been remarkable
improvements over the years in these areas, largely due to the
IMF’s work with member nations.
The IMF must re-embrace its role as the provider of up-to-
date barometers of the monetary problems in the world. A good
starting point would be to review Argentina’s IMF membership.
(Lawrence Goodman was a director and senior fellow in the
U.S. Treasury and is now president of the Center for Financial
Stability, which recently published “The Bretton Woods
Transcripts,” co-edited by Kurt Schuler and Andrew Rosenberg.
The opinions expressed are his own.)
To contact the writer of this article:
Lawrence Goodman at lgoodman@the-cfs.org.
To contact the editor responsible for this article:
David Henry at dhenry2@bloomberg.net.
