Event

Since 2008, the reliability of official inflation and growth figures is questionable as official figures report a rise in inflation between 5 to 11% whereas independent analysts estimate that the actual inflation rate is more than twice as high. After being solicited by the government; the IMF recommended a series of reforms that the government has yet failed to implement. In this context, the IMF called Argentina to implement recommended measures without delay. Based on Argentina’s response, the IMF could consider additional steps in December 2012 that might include censuring Argentina. In the latter case, Argentina could lose its IMF voting rights and even be expelled from the IMF. Relations between Argentina and the IMF are already difficult as Argentina has not allowed the IMF’s annual state accounts scrutiny under article IV consultation since 2006, when the country paid back all its obligations to the institution.

Impact on country risk

Reliability of data is an issue not only for holders of growth and inflation indexed bonds. After all, it is a sign that the government does not recognise mounting macroeconomic imbalances such as high inflation. As a consequence, the government does not address them but rather interferes in all spheres of the economy by, among others, adopting trade and capital restrictions, nationalising YPF or imposing tough lending conditions on banks. The elaboration of the 2013 budget, based on 2013 inflation of 10.8% and 2013 GDP growth of 4.4%, is a clear example of how inaccurate figures are used by the government to push further spending ahead of the mid-term election scheduled for 2013. In case of a budget deficit, the central bank is likely to finance it as the government has done away with legal restrictions to access central bank financing. In the wake of tightening foreign exchange controls and central bank financing of the government, ONDD recently downgraded its ST political risk to category 5.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com