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News : Global Economy Last Updated: Dec 18, 2012 - 7:58 AM

Argentina faces expulsion by IMF over dodgy national statistics
By Finfacts Team
Dec 18, 2012 - 7:54 AM

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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 ('equal 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 future.

Felix Salmon of Reuters explains:

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