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In October, President Cristina Fernández de Kirchner said Argentina would not bow to "blackmail by vulture funds", amid a row over a seized Argentine navy ship. The ARA Libertad, a training ship, was detained in Ghana at the request of creditors who say Argentina still owes them $300m from 2001. Photo: Wikimedia Commons
While embattled Argentina has won a case before
the International Tribunal for the Law of
the Sea to have its naval training ship, ARA Libertad, seized on behalf
of a US hedge fund over defaulted debt, returned from Ghana, the
International Monetary Fund
(IMF) may expel it over dodgy national statistics and a
hearing in another more important debt case, has been set for February 27, 2013.
Gerry Rice, director of External Relations at the International Monetary Fund
(IMF), issued the following statement in Washington DC on Monday: “As required
by the executive board’s decision of September 17, 2012 on Argentina, today IMF
management has submitted a report to the executive board on Argentina’s response
to concerns raised by the IMF respecting the quality of the official data
reported to the IMF for the Consumer Price Index for Greater Buenos Aires (CPI-GBA)
and Gross Domestic Product (GDP). I expect this report will be given due
consideration by the Board sometime in late January. The Fund has no further
comment on the report and its contents at this time.”
Rice referred to press release
No. 12/319 for additional background on IMF concerns related to the quality
of economic data produced by Argentina.
President Cristina Fernández de Kirchner insists
that inflation in Argentina - - currently believed to be well above 20% - -
remains in the single digits.
The rate mandated by the president is within a
very narrow band around 9%.
In 2007, Fernández replaced professional
statisticians at the National Statistics and Censuses Institute with political
appointees when the Institute began to publish inflation rates that were
embarrassing the political leadership. In the interval, there
has been official fantasy matched by reality on the street [pdf].
Besides, academic and private-sector economists risk
criminal prosecution for spreading false 'rumours.' In fact, one
academic was fined $125,000 [pdf]
for publishing inflation data that showed levels considerably higher than
official data indicated.
The BBC reports that
last September, Christine Lagarde, IMF managing director, threatened the country
with a "red card," meaning potential expulsion from the Fund and the G-20 group
of leading advanced and emerging economies, if it does not do more to produce
reliable statistics on its inflation and GDP. The response to the Fund appears
to be a polite 'mind your own business.'
The BBC reports Orlando Ferreres, former finance
minister, as saying the biggest concern is political. The left-wing populism
excludes considered debate and a necessary change of strategy.
"It's impossible to continue like this. They are
eating into all the reserves. At the current rate of spending, she has, at most,
two to three years left before the country is bankrupt. But I don't know if she
is prepared to make a change. I think she's not."
The dodgy inflation data also means that GDP figures are also bogus.
The debt issue stems from Argentina’s massive $95bn default. Some 93% of
bondholders agreed to take roughly 35 cents on the dollar. The investors that
didn’t take part in the swaps are suing to be repaid in full.
Thomas Griesa, a United States federal judge in New York, found that a pari passu
footing') clause included in the bond agreements, according to the judge that
Argentina could not pay those creditors who participated in the restructurings
without at the same time paying those who did not.
Collection action clauses
Known as CACs, the clauses make a restructuring
binding for all creditors if agreed by a specified majority - - usually 75%.
They are intended to eliminate the risk that some investors will reject offers,
often prolonging the process out for years.
The US court ruling in effect upheld the principle
of pari passu, meaning debtors cannot pick and choose between creditors.
The Argentine debt did not have a CAC, but the
ruling could make it harder to secure the majority needed to trigger CACs in
Felix Salmon of Reuters explains:
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